How the US is squeezing Australia dry

Perhaps rather than wait for the US to fix our currency problems, Reserve Bank chief Glenn Stevens should take matters into his own hands, writes Ian Verrender.

The Tony-Barack show stole the limelight earlier this month as they canoodled on the couch and whispered sweet nothings in the White House.

While the political commentariat sifted and raked over every bit of body language between the pair - toothy grin or gritted teeth? - the real power couple in the Australia-US alliance was largely ignored.

That was unfortunate. Because for those of us Down Under, Janet and Glenn simply do not see eye to eye any more, and everyone is starting to suffer.

We may be some way from divorce, but there's a definite frostiness that, frankly, is becoming uncomfortable. And perhaps the time has come to consider separation.

Late last year, after quite some deliberation, Glenn decided he'd had enough, leaving no doubt in anyone's mind that he reckoned the Australian dollar was overvalued. Hell, he even put a number on it, something any central banker is loathe to do.

After the tiniest bit of prompting - perhaps it was even a Dorothy Dixer - he said the Aussie battler should be about 85c against its American counterpart. And for a few months after that he kept hammering home the point.

It worked for a while. In fact the local dollar already was on the slide in mid December when he urged it lower and for the briefest period he appeared a master currency conjurer.

Since then, however, it has reversed course and Glenn, deflated and defeated, has given up. No point highlighting the impotence.

Last week, though, his spirits began to rise. Over in Washington, Janet held the cards - and his legacy - in her hands.

If she could just see fit to acknowledge that America was in recovery, that given unemployment was easing and inflation rising, Americans soon will have to get used to the idea that interest rates will rise, then perhaps the greenback would shoot higher and the Aussie retreat.

To Glenn's utter dismay, she instead maintained the Bernanke rhetoric. In a speech that was long on words and short on anything new, Janet Yellen - the head of the US Federal Reserve - told a stimulus-addicted nation what it wanted to hear. Interest rates would remain barely above zero for the foreseeable future.

On top of that, the central bank would continue its radical monetary experiment, injecting $US35 billion a month into the system. It's a great deal less than the $US85 billion a month the Fed was mainlining into the arm of American financial markets. But the weaning off process - what the Fed refers to as tapering - is taking quite a bit longer than is deemed decent.

Let's face it, when Ben Bernanke was running the show, he specifically said that interest rates would stay low until US unemployment dropped below 6.5 per cent.

Well guess what? Last week it dropped to 6.3 per cent, its lowest level in five years. But Janet seems unfazed. She is pushing on with the stimulus.

Not surprisingly, financial markets greeted her pronouncements with glee. Wall Street pushed back towards its record highs, bond traders pushed rates lower and the greenback remained weak.

Janet is happy for the currency wars to continue. Australia - and Glenn Stevens for that matter - are just collateral damage amid the friendly fire.

Australia needs a weaker currency. It is vital if the economy is to transition away from the investment phase of the mining boom.

A decade of currency strength has hollowed out the economy, decimating domestic industry, both in manufacturing and services. Now it is being squeezed dry by a currency that appears to be headed back towards parity.

Commodity prices are weakening. Our terms of trade are in decline. And the bulk of the profits from mining exports is likely to flow offshore as dividends to foreign investors. And still the dollar refuses to budge.

So what should the Reserve Bank do?Continue to wait around for the rest of the world to stop behaving badly, formarkets to return to rational behaviour?

The only reason we have a currency in the mid-90s is that we have positive interest rates and a triple A rating. Cash is flooding in to snap up Australian government bonds and any other interest security that's available.

So distorted are global financial markets by the US Fed's radical policy - now joined by Japan and Europe - that the idea of risk has been abandoned. Just as in 2007, caution has been cast aside as investors seek out anything that pays some kind of dividend or yield.

The macro effects of the strong dollar are clear. But the distortion is impacting us in less obvious, but no less important, ways. For the past two years, corporate chiefs have responded to investors' desire for yield by paying out an ever growing proportion of earnings as dividends.

They have raised dividend payments, even as earnings growth has been propped up by cost cutting rather than through improved sales. And as a result, capital expenditure - reinvestment back in the business - has suffered.

According to Australian Bureau of Statistics data, capital expenditure in manufacturing has declined 38 per cent in the past two-and-a-half years and intentions in the year ahead are set to be the lowest in 25 years.

While service industry intentions have shown a solid upswing, the trend to sating investor desires for ever greater dividends represents a significant threat to the nation's future. Less investment means stalled productivity. And without productivity growth, we will not be able to sustain our living standards.

So what should the Reserve Bank do? Continue to wait around for the rest of the world to stop behaving badly, for markets to return to rational behaviour?

Perhaps the time has come for more innovative action and greater intervention.

Instead of sitting back and hoping that a booming Sydney housing market will solve all our problems, it perhaps should consider cutting interest rates - to aid industry and weaken the currency - while imposing limits on bank lending for real estate.

Glenn Stevens is facing the greatest challenge of his career. After steering the nation through the worst financial crisis in history, deftly navigating the country through a resources boom of unprecedented proportions, his policy inaction during the past year threatens to tarnish his reputation.

It is time to stop waiting for Janet to set things straight. It's time, Glenn, to go your own way.

Ian Verrender is the ABC's business editor. View his full profile here.

Comments (313)

Comments for this story are closed.

feedtherich:

23 Jun 2014 8:17:42am

.. when I saw the title of this article I thought this would be about the fact (elephant in the room) International businesses extract money from Australia without attracting GST obligations thus Australian businesses cannot compete on a level footing .. that little thing will in time decimate the entire industrial landscape of our country and it appears everyone from our politicians to media are content to ignore .. perhaps complicit, perhaps collusion but not ignorance ..

pete:

23 Jun 2014 9:34:33am

Good point, we are being gamed by big business having a lend of us via tax avoidance.Also, the RBA seems to be actually subject to advice from the international central banking cartel, the Bank for International Settlements (BIS) which works through secret agreements with most of the world's central banks. BIS says maintain your rates, check in next meeting for any changes to policy. Got it?So much for independence.

RayS:

Yes but it's facile to claim the US is treating poor little Australia as collateral damage by qualitative easing and forcing foreign currencies higher in relation to the US dollar.

The Euro has risen about the same percentage as the Aussie against the greenback in recent months. The UK Pound and especially the NZ dollar have risen much more strongly than the Aussie.

I can remember when the NZ dollar was 30% lower than the Aussie - now it's at 87c compared to our 93c.

So the Aussie is pretty much at par with or below most foreign currencies except the US dollar.

In April 2013 under Julia Gillard, the Chinese and Australian governments signed into law the start of direct trading of Australian dollars and the Chinese currency, removing the need for an intermediate transfer into US dollars at the cost of time and money.

What happened with that agreement? Has Abbott quietly reverted to trading via the greenback to curry favour with the yanks? That direct trade agreement was one of Gillard's great triumphs yet Abbott is seriously planning to sign the US-concocted Trans Pacific Partnership agreement which will hurt us far more even than Howard's disastrous Free Trade Agreement with the US in 2004.

This clumsy little government is harming us far more than is widely realized.

Our trade with China is six times larger than our trade with the US. Yet Abbott has failed to sign FTA with China and seems to be political in our relationships, fostering closer ties with Canada of all places, a country we have next to no trade with and no need for.

The problem is not the exchange rate with the US dollar. The problem is the US dollar is the intermediary unit of international trade. Drop the US dollar as the unit of trade and it will fall like a stone, but the US will take the fall, not us and other countries. We and other countries have subsidized the superpower for too long.

AE:

The bleedin' obvious:

23 Jun 2014 2:53:23pm

Meanwhile the $A is $1.02 NZ. We must be so overvalued according to the BCA and its overseas boardrooms! A bit of reality in the opinion pieces would be good as business lobbyists try to push the $A down to increase profits for multinationals hiding under the cloak of the BCA.

Peter the Lawyer:

23 Jun 2014 4:05:42pm

I wonder how many goods and services we would get if business wasn't allowed to make a decent profit?

People like you seem to think that somehow there is a fairy land where profits are all 'fair' and where the law somehow doesn't support business transactions you think, in youir ignorance, are not proper.

FedUpExpress:

23 Jun 2014 5:36:18pm

Earning a living would suffice them Peter. I'm sure.

I doubt goods and services are as dependant as you claim on earning a living being more important than earning a killing. Nor would life, or trade, cease to exist amongst modern humans if high finance and pontification went belly up.

Were there lawyers in the dinosaur cave man era? Or just good one's? Guess we will never know.

Good luck with winding the clock back to day one though. 2000 years ago?

AE:

23 Jun 2014 8:45:58pm

Um, buying stuff online from Australia or overseas. Especially amazon. This relentless pressure has driven retailers' profit margins down, and we can buy stuff from anywhere in the world. I had thought that obvious.

DiogenesNT:

The bleedin' obvious:

24 Jun 2014 1:24:14am

Most members of the BCA have expressed their desire for lower taxes and wages. Lower taxes have for now been attained through dubious tax minimisation mechanisms like transfer pricing and tax havens. Lower wages can be achieved internationally through a lower $A. They continue to push for a shift of taxation to the public via the GST and some still think this is just increasing profits. Resource extraction continues without sufficient returns to our nation. There sure is an abundance of ignorance and apathy.

Rabbithole:

Lets get this straight, Australias economy and monetary policy relies on what one privately owned bank in the US says??

Is that the basis of our economic security?? Is that all we have got??

Who owns the US Fed I wonder? They are not public servants and are not accountable to the US government and are above US Law. The US government sold their central bank in the early 1900's to prop up government coffers during the Great depression and our much enlightened (not) PM is selling our mint to the same group of business people.

Funny enough the same business people that bought the US Fed are the same people that paid for the education of many Australian PM's and elite. These esteemed foreign trained PM's/agents even sold Australia on the US Stocky in 1986. Not a bad investment hey? And Abbots going to help finish the job for them.

If we are just relying on the US fed for advice, we are in more trouble than what i thought. Just look what has happened under there advice to their own country, they have sent it broke but the bank has got a free license to print as many US dollars as it wants.

We should drop our bags and run the other way, if that is all they have got to go on. What a joke.

Rabbithole:

As you know many government departments and agencies are spun off into corporations that are then drip sold off to private ownership just like Telstra in Australia, the same is true for the US Fed.

It was sold off back in the 1930's. What the new family owners bought was the license to print money and sell it back to the US Government and other world governments.

A pretty sweat deal hey, you can buy paper and ink, print heaps of money free of government regulation and sell it back to the government as a perpetual debt to your business because we all know the US gov is bankrupt and will be in perpetuity. The FED already skim 25% straight off the top of all tax collected as a debt repayment and that will not stop.

Now we are selling the Aussi mint for much the same reason to much the same people. Thats what you get when you vote in a foreign born PM, trained overseas at US expense and has pleaded allegiance to the Roman Empire.

AE:

23 Jun 2014 1:35:36pm

Gee, how did I not see that conspiracy right in front of me, thanks for pointing it out.A lot of the "money" that is being printed these days, as in created by the federal reserve, is never even physically "printed". It is created in electronic accounts, and exists electronically only, it is not actually printed.All of their governors must be approved by political vote. The problem with your "Abbott is a tool of the rich" thesis is that he can only exercise the power that the citizens of this country granted him, he is not an executive appointment by some shadowy group.

Rabbithole:

23 Jun 2014 2:17:34pm

If Abbot stands up in front of the media and says we're starting an invasion, thats it its done. Same as the dodgy MH370 search. One MP has been given these powers under a fraudulent 2 party system, thats not the way the Constitution was designed but its the way it is.

Thats how easy it is to control a capitalist democracy, its just money and the corporations have got all of it. If u buy up both sides, you can't loose.

AE:

HPH:

23 Jun 2014 4:13:16pm

AE,Thomas Jefferson wrote: "The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution...if the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

AE:

23 Jun 2014 4:46:51pm

I agree that banks can be dangerous if they fail, hence it is important that they are strong. I don't see how anybody is being deprived of their property though.I agree that central banks at the moment are deliberately hurting savers though via low interest rates.

AE:

23 Jun 2014 6:52:14pm

A lot of the people who were given loans should not have been, they were a bad credit risk. And since there is non-recourse loans on mortgages in America, and the homeowner can stay in the property until evicted, they got something for nothing (shelter) whilst not paying for it.A lot of those people who "lost" their homes never had them in the first place.Banks can only foreclose on people who don't pay, and people who don't pay shouldn't be allowed to keep what they purchased with credit. Otherwise, why pay anything back.

Peter of Melbourne:

HPH:

23 Jun 2014 4:10:14pm

The U.S. managed to do without a central bank until early in this century, when, according to Congressman Charles Lindbergh, Sr., "The Money Trust caused the 1907 panic, and thereby forced Congress to create a National Monetary Commission." Headed by Senator Nelson Aldrich, father-in-law of John D. Rockefeller, Jr., the Commission recommended creation of a central bank.

Though unconstitutional, as only "The Congress shall have Power...To coin Money, regulate the Value thereof..." (Article I, Section 8, U.S. Constitution) the Federal Reserve Act was passed in December 1913; ostensibly to stabilize the economy and prevent further panics, but as Lindberg warned Congress: "This act establishes the most gigantic trust on earth...the invisible government by the money power, proven to exist by the Money Trust investigation, will be legalized." The Great Depression and numerous recessions later, it is obvious the Federal Reserve produces inflation and federal debt whenever it desires, but not stability.

Congressman Louis McFadden, House Committee on Banking and Currency Chairman (1920-31), stated: "When the Federal Reserve Act was passed, the people of these United States did not perceive that a world banking system was being set up here. A super-state controlled by international bankers and industrialists...acting together to enslave the world...Every effort has been made by the Fed to conceal its powers but the truth is--the Fed has usurped the government."

Although called "Federal," the Federal Reserve System is privately owned by member banks, makes its own policies, and is not subject to oversight by Congress or the President. As the overseer and supplier of reserves, the Fed gave banks access to public funds, which enhanced their lending capacity.

Peter Kershaw, in "Economic Solutions" lists the ten major shareholders of the Federal Reserve Bank System as: Rothschild: London and Berlin; Lazard Bros: Paris; Israel Seiff: Italy; Kuhn- Loeb Company: Germany; Warburg: Hamburg and Amsterdam; Lehman Bros: New York; Goldman and Sachs: New York; Rockefeller: New York. (That most, if not all of these families just happen to be Jewish, you may judge the significance of yourself). The balance of stock is owned by major commercial member banks.

According to Devvy Kidd, "Why A Bankrupt America?" The Federal Reserve pays the Bureau of Engraving & Printing approximately $23 for each 1,000 notes printed. 10,000 $100 notes (one million dollars) would thus cost the Federal Reserve $230. They then secure a pledge of collateral equal to the face value from the U.S. government. The collateral is our land, labor, and assets... collected by their agents, the IRS. By authorizing the Fed to regulate and create money (and thus inflation), Congress gave private banks power to create profits at will.

HPH:

Stuffed Olive:

23 Jun 2014 4:19:50pm

It is not owned by the Government of the USA. It is private. It is owned by a cartel of other banks. It is also a bit complicated to explain it but there are plenty of articles on the web explaining in lengthy detail just how it is operated.

firthy:

23 Jun 2014 12:44:42pm

As per usual Rabbithole your posts are full of errors. The Fed is not a private bank - it is The US governments bank which is owned by the US. And we don't rely on advice from that bank - the problem Ian highlights in his article is that interest rate decisions made by the Fed impact on our exchange rate. The Fed knows this but their decisions are made with the US economy in mind, not ours. fair enough too but it doesn't make the pain we face/have coped easier to bear.

Toward the end of his article Ian actually mentions the cure - do what NZ has done and put a cap on lending for residential real estate and lower our interest rates.

Abbotabad:

Rabbithole:

Go and do some research and see who bought it and what conditions where established to justify the sell off and corporate takeover.

Most of our government policy comes from the US Fed and the US Gov. We even listed the whole of Australia on the US Stocky in 1986 under a foreign trained PM/agent.

How much money does the privately owned business get to print every money and provide no value other than paper and ink? Thats a good business right there. They can even encourage other countries to borrow money off the US Fed as well and make US the standard issue petrodollar.

The US Fed company has watched the US Government go into the financial grand canyon and there is no way out except bust.

Rabbithole:

23 Jun 2014 5:39:03pm

Peter,

U r right, its a system, a system to print money with no value. Thats is why the gold standard was removed and fractional lending was introduced. As for the fed being controlled by the government,. Who controls the governments, its the banksters.

So its the banksters that are in charge of the government through the revolving door of corporate donations that run the government that run the alleged 'system'. That business bought the license to print US dollars and sell them to the government, Abbot is about to do the same thing with the mint.

No money the US economy is dead and the government is dead broke, its like putting the fox in charge of the hen house. Look at the financials bubbles they create. They are doing it here to, yet we are to naive to work it out until after its complete. Then it will b too late. Abbotts got 3 years to sell us off as quick as he can.

looking:

23 Jun 2014 1:41:12pm

We are still slaves to the USA just as we were when they had a little housing bubble in 2008 and invented fraudulent financial instruments called CDO and CDS's to sell their debt to any sucker dumb enough to buy them.

they were devised, constructed ,marketed and sold as a fraud.

and dumb slaves we still are , being ripped off for billions in "defence procurement initiatives" , buying overpriced obsolete garbage we dont need.

nothing but tears for the impotence and ineptitude that manages our wellbeing in this country

Rabbithole:

23 Jun 2014 2:05:52pm

Looking,

Sad but true, we are only just waking up as a community to the fact our democracy rests on 2 corporations the ALP and LNP and they both take money from the same interests to pursue their corporate interests.

Capitalising the democratic system with big expensive corporate brainwashing electioneering and redesigning the electoral system around big gangs is the easiest way to control a democratic nation and its military.

There is not much difference between a one party system and 2 party system really. Enough money buys out the 2 party system every time in a capitalist monocrazy.

chalkie:

23 Jun 2014 7:09:15pm

it is OUR housing bubble that is the problem, not theirs.

Why is our interest rate so high? To stop a house price bubble?

Why is their such a risk of a bubble when all other countries are able to have near-zero interest rates? Because we import 300 000 immigrants a year to keep house prices (and consumer spending, and thus business activity) artificially high and wages low.

Thus we happily buy into a ponzi scheme - but that is our fault, not the US's.

John:

23 Jun 2014 12:35:08pm

Don't forget China is in this in the first place. There refusal to float the currency to market rates by artificially fixing currency to make sure their exports are cheaper started all this if one was to start the blame game. But it is important to put that into the debate.

WA Ideas:

How do the extract money from Australia without attracting GST liabilities?

If they do business in Australia and provide goods or services within Australia, then those goods and services attract GST.

If they engage Australian services or purchase Australian goods from outside Australia, then there is no GST payable on the supply as it does not have the necessary connection with Australia.

If you are talking about the GST threshold on personal imported goods through the post, purchased over the internet, well that's just a product of being in the global market for consumer goods. There are even Australian online retailers that sell goods to other countries which results in similar treatment for the importing country's consumption tax...

Jin:

23 Jun 2014 1:04:40pm

I thought is was going to be about the fact that our biggest and persistent trade deficit is with the USA. We buy a heap of there phones, PCs, software, Joint strike fighters etc but they buy basically bugger all from us. Might be time for a new ally, I hear china has some plans.

rattan:

Peter NQ:

23 Jun 2014 1:11:05pm

These I believe tare the final stages of the current fiat currency experiement. The Aussie dollar is worth something, we have an australian bond rate above inflation. The US and it seems the Euro and Yen are devaluing massively, being printed below their own inflation rates.

Yet somehow the Aussie dollar is being valued below parity?

When the next financial upset comes soon (Note the $700Trillion in derivatives and poor financial regulations) what will the fed do? Charge you for buying bonds with negative interest rates? Or morelikely buy their own bonds with their own valueless money.

The Australian Dollar is probably undervalued, and should be higher. So what to do to protect industries? Some good ol' tariff protections, thats what.Whilst Australia keeps shipping real commodities offshore and getting paid in monopoly money, we are being ripped off.

Is your labour worth something? How much funny money are you getting paid.

Peter NQ:

23 Jun 2014 5:25:29pm

Gold has value as a standard. It is non-copyable and doesn't noticeably degrade. Standards are useful when you try to define something of value. That is an assertion that applies generally, ie metres for land, or kilograms for commodities etc. Metres, kilograms and ounces of gold have no intrinsic value themselves. It is what they define is where their utility lie.

Fiat money also has value if the cost of creation is above the inflation rate. However this is not the case currently in the US. The US dollar is being massively devalued through QE.

I think the actuality of QE has nothing to do with recovery at all. I think the US is simply in a proxy currency war with China, to devalue its currency so that US manufacturing can compete.

Andrew Thomas:

Well, how about it ABC? Perhaps a Four Corners story on this topic. Your future may depend on it.

Also, I note the following:

"Reserve Bank chief Glenn Stevens should take matters into his own hands, writes Ian Verrender."

Here is something you can take to the bank. Glenn Stevens will do no such thing. He is a pseudo-leader typical of that which has infected both the private and public sector in Australia. He is an "ultra-follow" who will follow the rest of the lemmings over the cliff. It makes me sick to see such a man in such a high position getting paid a large salary to utterly fail at his job.

din:

Pete:

24 Jun 2014 2:58:41am

You've completely misunderstood purpose of the GST: it's a consumption tax, added at each stage of value-add. What you're proposing is a repatriation tax, a completely different beast. Putting a tax on repatriating profits has zero to do with a GST and would be an extraordinary measure for Australia to take, and one that would undoubtedly decimate overseas investment in Australia. Don't forget that the GST has been paid, possibly multiple times by US companies selling goods and services here. There's no elephant in the room, in fact you're not in the same room with this one.

Whitey:

23 Jun 2014 8:24:54am

I couldn't agree more. If the rest of the world starts an inflationary spiral, Australia will catch it too, and with interest rates having to go up, and a still too high dollar. The other problem is that bank margins are greater than comparable countries. Retail banking in Canada, a comparable country are 2 to 2 percent lower than Aussie equivalents. Having said that, New Zealand and Canada have a currency relative to Australia, so it isn't only Australia's problem. Their currency is also too high against the US.

Sheoakbloke:

23 Jun 2014 10:36:19am

Granted inflation appears to be thing of the past but just let us suppose that we do manage to get the dollar back to Glenn Stevens' desired levels. Perhaps that might come about because of the recession we are entering into. Yes, the recession you have when you're not having a recession. The only thing that produced that wonderful figure of 1.1% growth in GDP for the march quarter was a whopping, never to be repeated, 1.6 GDP percentiles contribution by mineral exports. The rest of the economy shrank by 0.5%.So we lower our interest rates lower than the "emergency" settings that LNP accused the previous government of putting the economy into. Bond rates fall. Our dollar falls further. Our terms of trade are not forecast to improve in the near future but essential imports for the entire economy (fuel , machinery and technologies) will rise significantly increasing cost of production across the entire primary industry sector. This flow on inflation will see both food prices (cost of living) increase while profitability of mineral exports decrease to offset increased commodity prices due to more desirable exchange rate. Government receipts fall further placing still more pressure to reduce spending. The real inflationary pressure comes then. We lose our AAA credit rating and start seeing serious increases in cost of replacement finance which leads to even further reluctance for financial institutions to finance existing business loans, let alone new ones. While the price of oil seems to be buffered by global demand (too high and demand falls) Australia is way too dependent on this commodity for our everyday economy. International oil prices may have stabilised but Australia is prone to runaway inflation should our dollar fall significantly and the profitability of virtually all our economy is sensitive to oil price. This is another reason why it's a complete crock to continue to invest so much in roads without corresponding investment in more efficient forms of transport like rail.

Rodf:

23 Jun 2014 2:21:32pm

The big and very real risk for the foreseeable future is not inflation but international deflation of the type that decimated Japans economy over the last 20 years. Negative interest rates are the first red flag.

Japan's housing prices have fallen by around 70% since the eighties and given Australian bank's addiction to real estate lending, think what similar deflation would do here such as your existing mortgage suddenly being 200% above the asset value.

Sheoakbloke:

23 Jun 2014 4:38:42pm

Your right except the fundamental difference between Japan and Australia is the huge savings funds that Japan has so essentially they issue debt to themselves. They also have a lot more off-shore asset ( car industry etc). We have huge personal liabilities ( apart from Superannuation funds ) . Traditionally Australia has acquitted debt by selling off assets to offshore interests. The deflationary pressure we have experienced in recent years because of the high dollar and very low wages growth. We seem to be developing quite a lot of impaired asset in the form of developed mines that are being mothballed because of depressed commodity prices. How many of these are Australian owned enterprises though?

Blzbob:

23 Jun 2014 10:05:30am

Interest rates should always be set at double the inflation rate.Also the outright cost of land needs to be included in the inflation rate calculation. It doesn't matter haw many millennium you spread your payments over, the whole cost is the price on the transaction contract on the date of purchase. That makes it in everyone's best interest to keep inflation low and profiteering to a minimum..

phowitt:

23 Jun 2014 10:59:47am

yes europe having a negative interest rate is interesting development . please dont pin our hopes on the US dollar .. it is going to collapse shortly ... major countries are moving away from us dollars until the only one left is the petro dollar

Rabbithole:

23 Jun 2014 12:46:04pm

Wht do you call removing the gold standard and fractional lending? A perfect recipe for rapid hyperinflation. What happens after the boom....its bust. We will all wake up from it one day with a terrible hangover in the form of massive government debt and total public asset privitisation and destroyed environment. That a few rich pollies.

Steven:

23 Jun 2014 8:39:03am

If our government didn't have to issue bonds, ie didn't have debt, then the overseas cash wouldn't be flooding in to buy them and thereby holding up the dollar. So, all Rudd's GFC induced spending, Howard's years of middle-class welfare and Abbott / Hockey's unwillingness to fix the corporate and personal welfare are now hurting exporters and import-competing industries. Government debt has costs.

gbe:

Blzbob:

23 Jun 2014 10:09:15am

Industry assistance or corporate welfare should only ever be paid as a loan,and if it is never paid back the the government owns another business to either nationalise and mange of privatise and sell off.

Polly Wolly Doodle:

23 Jun 2014 11:16:00am

Agree Bizbob,

Tax payers contributions given to industries, some of them already wealthy industries (resources), should be on a need's only basis and should be a loan to be returned in full. Why does that not happen?

Applaudanum:

23 Jun 2014 12:11:37pm

It doesn't happen because government allow business to dictate the terms. Business says "hand over the millions without the requirement to pay it back or we'll walk. We'll do it, you know... We're getting up... We're walking... We've got a hold of the door handle ..."

Odd how our government can't scrape the sense to say "Fine, you can walk, but you won't be able to get your machinery, buildings, land, intellectual property, etc. through the door on your way out, nor will you be able to sell your goods to the Australian Market once you're on the other side of that door. Bye!"

AE:

23 Jun 2014 1:40:28pm

The chance of your employer being propped up by a Labor government is directly proportional to how much of a union workplace it is. For instance, if you are a carmaker whose sole profit is from government assistance, you will get a subsidy to keep making cars people don't want because everyone there is in the union.

Polly Wolly Doodle:

23 Jun 2014 11:13:30am

Hello gbe

The difference is the Abbott/Hockey rhetoric has initiated the attack on welfare recipients. 'Welfare' has become a weapon of choice. Under Labor, looking after the vulnerable who are on welfare is something they do, often with bipartisan support. They are not likely to use 'welfare' recipients as a target for denigration.

And the difference can be measured - between those needy who are entitled to welfare (tax payers contributions), and wealthy industries that are getting tax payers contributions and paying little tax.

Sheoakbloke:

Polly Wolly Doodle:

23 Jun 2014 12:52:45pm

Hello PTL

With respect, those in our society who are elderly (pensioners) or disabled, or vulnerable for many reasons, reasons which keep them excluded from employment, are not deserving of being denegrated and demeaned by people like yourself. And many many pensioners I know, who are vulnerable, vote LIberal Party because they have always voted Liberal Party, are now waking up to the fact that they are being asked to do Joe Hockey's 'heavy lifting'.

And the Tories will only ever consider those with the power and money to keep them in power.

Peter the Lawyer:

I am not denigrating any recipient of peensions or welffare. That is the mistake leftists always make when we on the right point out that if you increase welfare more people will end up on it.

There are many people who can't shift for themselves. However, it seems that there are many more such people when the government offers a higher dole or pension.

The problem is that those who really do need a safety net get less than they might because of Labor's policies of discouraging business and treating too many people as victims rather than letting them become achievers.

The problem is this, if it is easy to be on welfare and get free heath care and subsidised medicine and housing, then why would many of those at the bottom of the heap who can work bother to do so?

AndreP:

23 Jun 2014 9:27:34pm

More unsubstantiated polemic from the so called 'right wing" peanut gallery. Look at the facts not your soft thinking fanboy blathering for your team. I don't care for "left" or Right". Until either side can show me policies that pertain to what is happening in economies now, your fighting for a right versus left war based on ideologies that may have been relevant 50 or more years ago, is as relevant as a Sunni and Shia fighting over who was given the right to lead Islam centuries ago. And about as dangerous

MT_Syd:

23 Jun 2014 3:41:04pm

"the Labor party will just give you a higher dole, the Tories will create the conditions were you can get a job."

Hockey and Abbott have no real plan for increasing the number of jobs. They simply believe, or at least say they believe, that a smaller government, and smaller government debt will naturally make the private sector grow.

In reality, government has a much bigger role in the economy than simply creating the right conditions and incentives for the private sector.

Government creates a large number of jobs directly via the provision of services that the private sector cannot or will not.

And government fiscal policy has a fairly direct impact on the economy as a whole by providing stimulus (deficit budgets), or dampening (surplus budgets).

More specifically, individual policies have direct effects on investment. For example, our tax laws encourage investment in real estate ahead of other types of assets.

Government spending also underpins future productivity as it provides the bulk of funding for education, and for basic research.

The conservative side of politics do not like any kind of nuanced view of the role of government, preferring instead three word slogans, and economic ideas formulated more than a century ago when the economy was a 100 times smaller.

Sheoakbloke:

23 Jun 2014 4:46:07pm

The same mantra from the Howard government ( smaller government) left a much bigger government with a greater share of tax as % GDP than when they started. The record stands. They were the most profligate government in Australian history.

rusty cairns:

23 Jun 2014 3:43:14pm

GDay PeterJust the other day there was the story that used the numbers and proved there has been no great increase in welfare dependence. Just ignore the evidence and lie Peter.In the last 25 years the ALP introduce policy which decreased the dependence of old age pensions just ignore that too.14,000 people lost their jobs in QLD just a few years ago. They went from being workers paying income taxes because of their employment to unemployed. Which political party made them unemployed Peter ? It was stressed at the time that this was done to balance the budget and the same budget was promised to show surplus that next year and even bigger surplus the year after. Please post the results of those 2 budgets Peter, and post the reasons that the government said were the problems why surplus was not attained.Please stop lying Peter, you are giving real lawyers a bad name.

Blzbob:

DiogenesNT:

23 Jun 2014 6:54:14pm

And you have a mortgage on the high moral ground. Tories good, Labor bad. Labor voters dole bludgers, L&NP voters all employed. Are you starting to see how ridiculous your statements look? If not, you are beyond redemption and an asinine fool.

MT_Syd:

CJB22:

23 Jun 2014 9:39:34am

Throw in the elimination of 1. the super rorts the wealthy enjoy (and the masses miss out on), 2. tax minimisation via trusts etc, 3. the totally unaffordable PPL scheme, etc and the so called budget crisis would be a non event.

Peter of Melbourne:

23 Jun 2014 12:06:22pm

and there you have it CJB. that is the crux of the problem with the latest so called "budget" our most vulnerable are being hammered whist are most wealthy and privilaged are still being pampered. what amazes me is that the LNP leadership refuses to acknowledge this even though they know the publics feeling on the matter.

we need a new political path in this nation where the people as a whole of this nation are the first priority and not wealthy individuals or corporations, either national or multinational. this nations natural resources should be used to enrich our own and not foreign entities.

today we had Greg Hunt on Newsradio stating how the "the tax on the air we breathe" is driving all our industry offshore (with what was probably a straight face) whilst not even acknowledging how so called FTA's are the main reason we have lost our industry base.

time to get rid of the lot of the bottom feeders who fill our parliaments and senates across the nation and hopefully replace them with people with no experience with the "political machine"

AE:

23 Jun 2014 1:42:55pm

Trade creates wealth. You seem to be saying that less trade is better, that we should make stuff here even if China could supply it much cheaper. That would make for a very inefficient, high inflation economy.There needs to be more trade, not less.

Peter of Melbourne:

23 Jun 2014 2:28:28pm

the complete destruction of our manufacturing and textile industries has not created wealth within this nation, how about asking those ford employees who were layed off on friday how they feel about their jobs going to people on foreign shores being paid $000's less than them whilst enjoying the benefits of 2 million cambodians being paid slave wages to help keep their manufacturing industry thriving!

these so called free trade agreements have not one thing to do with free trade considering all the conditions emplaced within them by our so called trading partners. better we rebuild our own manufacturing base using our own natural resources and temporary labour from indonesia, the south pacific nations and africa. lets see how fast nations such as china scream when they have to compete on equal footing.

the system which the LNP and Labor have emplaced into this nation over the past 40 or so years has failed the people of this nation miserably.

better to replace it with something which works for the good of our own people and those we employ on temporary work visas at competitive rates. i would hope we could do better than slave wages whilst also offering the benefits of 21st century work conditions and medical support to those who take up such an offer.

all it takes is implementing the right type of system which means destroying the LNP, the Labor party and especially the psychotic Greens whose ego's like to write cheques the people of this nation have not a hope in hell of cashing.

AE:

23 Jun 2014 4:28:01pm

It's sad about the Ford workers but the Ford company should have made stuff people wanted. And if I have a choice between buying something from overseas at half the price versus buying it here, I'll take the cheaper option.Companies need to provide what people want at a price they're prepared to pay.Think of it this way - how many weeks pay does it take to buy a TV or fridge now versus 40 years ago? How many peope can afford overseas trips now because we are wealthier and relative prices have come down?Our economy is wealthier than 40 years ago, when manufacturing was a much larger proportion of the economy.I resent paying tax to prop up inefficient industries. Be efficient or go out of business.

Peter of Melbourne:

23 Jun 2014 2:47:04pm

unequal trade is not the type of trade the people of this nation need. such terms only benefit a tiny minority, hence the current trend of the rich getting obscenely richer at the expense of the rest of us getting one hell of a lot poorer.

AE:

23 Jun 2014 4:49:53pm

I disagree, trade has given us more consumer choice than we've ever had in history. No longer do you have to pay Gerry Harvey a 400% mark-up on a fridge or TV, order it online.Cheaper goods is just as good as a pay rise.

Peter the Lawyer:

Explain what these 'rorts' are. Tell us what a trust does to reduce tax. I bet you can't. Like a lot of other lefties you are just parrotting rubbish.

The maximum anyone can put into super before paying normal marginal rates on the contributions is $25K per year. That is not a princely sum.

Small business owners can roll over up to $500K in a lifetime from the sale proceeds of their business. That is something I've seen many people in lower socio economic groups do. If you have built up a small business and have taken a huge risk with your capital and employed people, you deserve some tax relief, especially since income tax was never meant to fall on cpital transactions.

As for Trusts, the most they can do is split income. But when a taxpayer earns a really high income, trusts are not really that beneficial for tax purposes. They are mostly an asset protection tool.

Peter the Lawyer:

But most people don't have any capital assets in their super funds. They only have cash. So CGT isn't really an issue.

So some people can't afford $25K in contributions. Why does that invalidate the argument that the so-called rort is hardly a gnat bite.

Less than 1 percent of taxpayers (say 150,000) pay 25K per year. If they paid tax at the top marginal rate on that sum they would pay about $8K more in tax a year. However, I assume that they wouldn't pay full tax on all contributions, because that would mean they received totally different treatment than otherincome earners.

So how would you then decide how much tax is paid on super contributions. WOuld you have a sliding scale like in income tax in general? Welcome to another layer of complexity for revenue that would be in the low 100s of millions.

The super 'rorts' are just not as extensive for high income earners as people would have you believe.

DiogenesNT:

DiogenesNT:

23 Jun 2014 7:17:30pm

But Peter, many people have capital assets in SMSF and it is one of the fastest growing areas in super funds. It must gall you at times that you cannot always be right given your university education. Fear not, it is only sarcasm not a personal attack. Hell, you might sue me.

MT_Syd:

"But most people don't have any capital assets in their super funds. They only have cash. So CGT isn't really an issue."

Many people have funds which hold a variety of type assets. I dont know any fund which is purely cash. That would be no different to a term deposit!

"So some people can't afford $25K in contributions. Why does that invalidate the argument that the so-called rort is hardly a gnat bite. "

Because the fact is that although relatively small in number, high income earners cost the government a huge amount in terms of the lost tax revenue due to superannuation tax concessions. Most of the benefit goes to need it least, which would be OK if the cost of the aged pension was reduced. But it isnt.

DiogenesNT:

23 Jun 2014 7:14:27pm

OMG Peter, give it rest mate. Every one you has an opposing view to you is a leftist? You know that just makes you look like dill don't you. Let me guess, you have had a disagreement with a Tory. What was I thinking.

Nova4avr:

23 Jun 2014 8:43:19am

Yes!. This article is spot on. Unfortunately I think the damage has probably been done, but dropping interest to almost zero would halt the foreign investors borrowing money overseas at next to nothing & investing it here at a high rate of return.Why we have allowed the bulk of the mining profits to flow offshore, has always amazed everyone, except those that could do something about & don't.Our manufacturing sector will soon be at an all time low, in fact lower than any industialiased country in the world, which has dire consequences, that have not been recognised. The govt. seems to doing all it can to make sure that manufacturing in Australia fails. There are a lot of areas it could help by regulating energy prices as an example.

Harquebus:

23 Jun 2014 10:57:01am

That will do nothing to solve the ever increasing use of energy in an energy constrained world. Expensive energy is stifling growth. Crude oil production has peaked. The era of economic growth is over.

Harquebus:

Redfella:

23 Jun 2014 11:03:46am

I always get a good laugh out of the threat by miners to up and leave if we dare tax them too much (I should get out more). What, are they going to take the dirt, the infrastructure and the trained workforce with them?And, with the margins that most mining companies seem to demand it wouldn't hurt for a few marginal mining operations never to get off the ground. Why is it that a coal or iron ore mine is now unsustainable at $90/t, when this was the price five years ago? Wages haven't increased that much in the past five years. Suddenly your margins aren't there anymore so you pull the pin...?

Gordon:

23 Jun 2014 12:14:00pm

In a word, yes. To use a sporting metaphor, the offside line drifts back and forth with prices, taxes, regs, investors' appetite for risk, and as it drifts projects end up on the wrong side of it. You can run at a loss for a while but eventually you blow the whistle, put the plant on care 'n' maintenance, and lock the gate.

At any given time there are projects that are too marginal to go ahead. These are the ones not getting off the ground. Companies have bottom drawers full of them and new ones get added all the time.

To answer your other question, $90 and rising is way less risky than $90 and falling. There is an initial hump to be got over, paying back the most costly debt, getting processes ironed out, etc. A fall in prices at the wrong moment will kill you stone dead. Falling price is a huge red flag saying don't start a marginal project.

A falling tide shows who's swimming without their shorts. This will include Clive, and no-one wants to be in THAT photograph..

Redfella:

23 Jun 2014 1:15:02pm

There in lies the problem. If a mining project is profitable at $90/t the rise and fall of the commodities price should be irrelevant, as long as stable markets and consumables are maintained. Too many mining decisions are made by economics and business degrees and not minerals processing and metallurgy degrees. There is a quantum difference in defining risk from these two perspectives.

Peter the Lawyer:

23 Jun 2014 4:39:02pm

Yes, we can all be sturdy peasant farmers on the collective farm, wearering hessian sackcloth and eating a strictly vegetarian diet, with the Government rationing everything. Of course we'd all then be equal (except for the inner party members who would be low rent versions of capitalists).

Muti-nationals are benevolent in that they are the only ones who can stand up to the real tyrants: governments.

In the last century governments have killed nealy 500 million people through their actions. They have caused untold pollution too I suspect Multi-national companies have killed very few in comparison and apart from the ocassional oil sppil have caused a lot less environmental degradation that governments have.

I think I think:

23 Jun 2014 11:08:24pm

PTL, your argument implies that we are dependent on mining for survival. There are only so many holes to dig. What will we do when the last hole is dug? It has to happen. Money now and screw our kids who come after, hey? I guess you truly represent what it means to be a "capital fellow".

Dave In Melbourne:

23 Jun 2014 8:46:32am

The currency wars issue is much much bigger then aussie versus USDThe U.S. dollar?s world reserve status is nearing extinction. The petrodollars which have kept it alive for decades are changing. Multiple major economies now trade bilaterally without the use of the dollar; and with foreign conflicts on the rise, this trend is going to become the norm.Two weeks ago Putin adviser Sergey Glazyev recommended to the Kremlin that a coalition of nations be formed to end the dollar's reserve status and initiate a form of economic warfare to stop "U.S. aggression".

the recent Russina deal with the Chinese on energy was a portent - no US$ on that one.

Half the world is positioning to dump the currency altogether.

It is not a case of Stevens lowering rates, which will probably ease the currency a bit, but what the rest of the world is seeking to do about the US dollar as the worlds reserve currency.

I think I think:

blax5:

23 Jun 2014 10:28:53am

I missed this aspect, too. The monopoly position of the USD is more of a problem than an assett, it looks to me. I don't think we need to be belligerent, form a coalition and provide shocks to the world economy. A kind of phase out process is a lot better and seems to have already started. But it's pretty new so we won't see much effect inside 2 or 3 years.

Meanwhile China is investing billions in Greece. They see great potential and will probably bypass the monopoly of the reserve currency. They did not explain much what potential they see. But when I saw oil mallees in WA on Landline last night, I remembered that eucalypts grow very well in Greece. They must have something on their minds, the Port of Piraeus wouldn't be bought for the sunshine I don't think.

The current situation in Australia is not a pretty picture but change to get out of this monopoly situation is on the way, I think.

Peter NQ:

23 Jun 2014 4:46:30pm

Gold is more secure than bitcoin. Both work on the same method as a standard. Ie a fixed amount, difficult to copy, etc, except Bitcoin is a cryptocurrency and codes are meant to be broken. The gold code is bit harder to crack.

I think I think:

mahaish:

23 Jun 2014 6:22:09pm

the problem with a global currency graazt, is that we will ge the euro zone mess but on a global scale.

we will have a fixed exchange rate and currency deposits will flow away from trade deficit nations towards trade surplus nations, just like gold did when the world had a gold standard. this will put incredible deflationary pressure on the trade deficit nations.

if ayone wants to know the future , look into the past. all we have to do is look at the currency wars and capitl flows that took place between the two world wars, to realise where this mess can ultimately go.

reserve currency status does not bestow upon the US any greater power than any country that has a tax driven sovereign curency and a floating exchange rate , operating within a internationaly trusted legal framework.

the power and ultimately the internal value of the currency is detrmined by the the investment and productive potential of the country that issues the currency . the value of the currency is also reflected in the relative purchasing power of our wages. the horns of our dilema , is that high wages equal high currency. a lower exchange rate would lower relative wages, but we live on a very very valuable peice of real estate, and foreigner are starting to realise this. its no surprise to me that our exxhange rate is high because of our investment potential.

ultimately , the USD'S power along with us, resides in this potential, even though the yanks are doing everything they can to undermine this value deliberately

we can go the devaluation low wage path, but it might be better to go the high currency , higher value add path, but thats going to need some serious re thinking on industry policy, and it might take a generation or two to get it right. instead of exprting the iron ore, actually build technically sophisticated things with it, that foreigners will pay for regardless of the exchange rate , because it is uniquely good and clever.

Harquebus:

mahaish:

23 Jun 2014 2:08:23pm

to paraphrase mark twain,

rumours of the greenbacks death are grossly exagerated.

whats putin suggesting we all get into rubles and yuan.

the US runs a trade defecit with the rest of the world., and as long as that keeps happening , the rest of the world will keep accumilating dollars deposit balances within the US and foreign banking systems. i dont see anybody puting their hand up to reduce trade with the US, and hence reduce the trade balance.

you can go to every dark and dingy corner of the planet, and you will still get someone who will except yankee money. try doing that with rubles or the yuan. ultimately the russians and the chinese are toast, because they can force their own citizens to pay taxes in the local currency, but sure as hell foreigners wont trust their currency without the rule of law, and you cant have that when you are running a quasi dictatorship.

Gordon:

23 Jun 2014 8:48:00am

After steering the nation through the worst financial crisis in history, deftly navigating the country through a resources boom of unprecedented proportions...I reckon the bloke can do his job without advice from the peanut gallery.

-Advice which seems to be: "fix the dollar by beggaring our economy up as badly as the yanks have beggared theirs". No thanks.

PS if this business editor is so concerned about mining dividends leaving the country why isn't he advising locals to buy shares in mining companies?

Peter of Melbourne:

23 Jun 2014 12:58:30pm

look around gbe at what we gained with the $350,000,000,000.00 of borrowed hard currency.

yeah i'm not seeing it either except for some school halls whilst the rest of the school collapses due to lack of funds for maintenance, an nbn which has cost billions so far and only services a couple of locations around the nation, lots of shoddy 3rd rate insulation batts purchased from india rather than manufactured here, lots of 3rd rate pv panels and inverters purchased from china rather than manufactured here... the list goes on.

labor borrowed hundreds of billions and invested bugger all in our own nations industry or infrastructure, that is the failure of the labor party and the reason the party machine deserves to be dismantled

MT_Syd:

Gordon:

23 Jun 2014 10:30:59am

Well, it was Ian Verrender who raised the topic in his article... Dividends flowing offshore tend to weaken the dollar, and the fact that isn't happening much yet was part of his thesis that the RBA should rush about lowering interest rates or printing money. Incoming investment is (still, just) swamping the outgoing dividends, but that won't last forever, causing the inevitable Aussie syndrome of bust following boom. My point is all this would be cured if Aussies invested more in our own stuff - less cash surging in and out of the country - and that this would be a healthier long-term remedy than trying to out-QE the yanks.

Gordon:

23 Jun 2014 2:39:42pm

No, because it's a good investment stand-alone. Others invest here because they see a good deal. If they are good deals that send profits home why don't Aussies buy into them? Simply the attitude that investment is too risky or only for rich bastards that we can then moan about. I believe this reluctance has been a brake on our prosperity and, to return to the subject, is a missed opportunity to avoid the backwash of other country's currency wars.

MT_Syd:

"If they are good deals that send profits home why don't Aussies buy into them? Simply the attitude that investment is too risky or only for rich bastards that we can then moan about"

Most Australians only hold shares indirectly in their super funds, and the decision to buy which shares rests in the hands of the fund managers.

You seem to be saying that more people should invest directly in shares in Australian companies. It is fairly clear that most people do not know how to, or simply do not want to, or just dont have the spare cash.

AE:

23 Jun 2014 2:38:25pm

People will invest where they see a possibility of making a return, and the return that they demand will be in proportion to their appetite for risk. If people don't invest in Australia, it's because they perceive it as unattractive, or at least not as attractive as other options.

Peter the Lawyer:

23 Jun 2014 4:45:15pm

So how do propose population control be carried out? Do we just let old people in hospitals die. ? Or do we try just a little less harder to save premature babies? Or do we instigate a one child policy?

Harquebus:

Sheoakbloke:

23 Jun 2014 8:54:33am

"Continue to wait around for the rest of the world to stop behaving badly, for markets to return to rational behaviour?"An interesting comment especially in context of our overpriced housing market and that domestic lenders now have 95% of there loan portfolio stuffed in the domestic housing market. Banks behaving badly?The idea of "imposing limits on bank lending for real estate" perhaps has merit. The domestic banking industry has seen this as a safe bet because of spiraling prices but treats the business lender like a leper imposing ridiculous costs and a premium interest rate even on a simple overdraft facility. The decline of capital expenditure in manufacturing is as much about a virtually non-existent line of credit financial institutions offer business. So much easier to let the housing market use mortgage collateral as a way to access profit with low risk.The consequence of this has businesses often using private mortgages as 'start up' or buffer capital. Another piece of the massive private debt puzzle Australia suffers from.If inflation ever rears it's head again and interest rates rise then we will see not just housing loan foreclosure but the loss of employment in many small enterprises whose only access to capital for business is this personal collateral.

gbe:

firthy:

23 Jun 2014 12:57:49pm

Not nice that thing like that happen gbe but I suspect the farmer was up to his eyelids in debt and the value of the farm didn't support any more borrowing. Residential property in Australia's capital cities has been a good bet for the banks because it can be sold for a good amount even if the loan has gone bad.

Sheoakbloke:

23 Jun 2014 11:54:58am

An idea but would this see the end of the short term speculative purchase by the SMSF looking to make a quick super top up? Perhaps not such a bad thing if it results in more affordable properties for younger home buyers.

rusty cairns:

23 Jun 2014 8:54:43am

What the Australian reserve bank to slow to act ?How often have I heard that our RBA was to slow in its reactions ?I suspect our federal budget would be in a different position had our reserve bank made our dollar more competitive by lowering the RBA interest rate year or so ago ?If the RBA had lowered interest rates over the last 2 years Hockey would have criticised the last government citing some trumped up problem in government policy and not recognising that the Australian economy is so dependant on the world economy. It only takes our currency to fall in value a small amount to see our advantage in terms of trade increase by large amounts.

Peter the Lawyer:

DiogenesNT:

23 Jun 2014 7:37:16pm

Hi Peter of the 'legal' fraternity. And what about all those other countries that have tariffs, are they notoriously lazy as well. China, Japan, USA, Korea et al. Shoot yourself in the other foot next time.

rusty cairns:

23 Jun 2014 2:52:02pm

GDay MathewIt's supply and demand which are the real drivers in costs.In housing the supply must meet demand in areas where there is the opportunity to find work nearby is crucial.Please read 'chirping crickets' comment below.I add to it, if negative gearing was only available to new or newer housing this would increase investment in new homes, increasing supply.If our dollar was valued lower and interest rates were lower there should be increased investment in all industries other than housing as the products manufactured/ supplied become more competitive with imports.I imagine every person involved in the tourist industry would like our exchange rate to fall.Therefore amendments on negative gearing and the RBA lowering interest rates should mean more new housing investment and investment in other industries providing more new work opportunities.However as we have seen in the past the commercial banks may not pass on in full any RBA interest rate cuts, therefore negating the full benefit of the rate cut to our economy but protecting their profits.Then there is the problem that we have a federal government that says it will have ships built overseas because of time delays and cost blow outs which may occur here, and using almost the same breath announce that there will be a further $12 billion increase of our taxes spent on fighter jets built overseas that have seen nothing but time delays and cost blow outs. The recognition of hypocrisy is beyond some self called "Adults" it seems. How many new jobs have they promised and which industries do they expect them to be made ? Nannies for women of calibre perhaps?More hypocrisy, we are told the plan to pay women more to stay at home and allowing them to stay at home longer getting paid will meant they return to work earlier, the self called "Adults" argue.

FlapDoodle:

23 Jun 2014 9:05:10am

The U.S. is our best friend, isn't it? They would not treat us any worse than themselves, would they? Perhaps this is just their way of having us contribute towards our security shield. You know - the illusory one.

rusty cairns:

23 Jun 2014 6:57:13pm

No burke I think the USA frames it's financial policies based on how much it will benefit the USA and disadvantage any of the USA's trade competitors.Mate the USA will dump millions of tonnes of produce, like sugar onto the market below costs so that competitors don't get a share of that market. Remember you are talking about a country that banned all hemp growing nation wide to protect a new product called nylon which only one manufacturer was allowed to make at that time. they pressed for that ban to be made worldwide.Please learn about Du-Pont and it's links with the Federal Government of the USA.Don't be fooled, the hemp crops grown for fibre were not the same as the crops grown for drugs legal or illegal.

Steve:

23 Jun 2014 9:05:38am

Rates have already reached the point of diminishing returns. They are so low as to have laid waste to the plans of responsible savers and are forcing people into risky products just so they can get a return above inflation. Rates do not need to go any lower.

I believe we would be much better served by;

- Raising the RBA inflation target band to 4-5% temporarily

-Print money as long as inflation stays under 5% and the dollar above 85c

-Use the printed money to build fast rail, the NBN, public transport, water infrastructure and pay down debt.

Dave In Melbourne:

graazt:

Steve:

Money can be printed just as a business can issue new shares. It doesn't have to come from anywhere. It will of course have flow on effects regardless of what it is spent on.

The two main effects of printing new dollars are:

-Raising inflation (Not terrible, so long as it is kept to fairly modest levels. Statistical analysis shows that inflation only really becomes a threat to growth at quite high levels, something like a percent a month.)

-Depressing the currency (We have an economy that is structured around a medium value currency of something like US$0.70 - US$0.85. Pushing it outside of this window causes real problems. We need a target band for the currency just like we have for inflation.)

rattan:

Steve:

23 Jun 2014 12:27:32pm

Which is why I proposed pegging the level of money printing to the inflation level. We can print a small amount without inflation immediately leaping to huge levels. The ground rules need to be clearly outlined before any such policy should be enacted.

Gordon:

23 Jun 2014 12:29:33pm

" as a business can issue shares' ..and a look at the swath of companies with billions of effectively worthless <1c "death zone" shares should give you the clue that printing paper without revenue to back it up has exactly one consequence.

Steve:

Peter NQ:

23 Jun 2014 1:35:10pm

Why do we want a lower dollar? To protect manufacturers and exporters. Instead of playing spiralling currency games, the answer is simple. Increase Tarriffs against countries playing these games. Simple as that.

The Australian economy can remain strong and industries maintained whilst the rest of the world enslaves their populations in funny money.

Steve:

23 Jun 2014 3:12:23pm

We want a lower dollar because the economy that Australia has is primed for an exchange rate significantly lower than what we are faced with currently. This will continue as long as other countries are printing money. We may be able to make imports more competitive with tariffs but we can do little about the competitiveness of our exports. Our agreements under the WTO would also make such tariffs illegal I believe.

Peter NQ:

23 Jun 2014 4:38:07pm

That may be true that current labour costs were established when the Australian Dollar was 50c. But talking about the legality, illegality is laughable in the current environment, where the rules that the common person lives by, ie kenysian economics, are thrown out the window at macro levels. Most of our exports are already competitive and are sold at the world price, Australian Beef typically competes against domestic industries in the US and asia with at least a 25% tarriff onboard. Rice faces a 300% tariff in Japan.We export nearly no manufactured goods, and import tariffs on competition imports wont make a difference to that, however it will mean they can survive on a domestic market which is the lesser of two evils when compared to loosing the skill base forever. You are advocating trying to play fair in an environment that is cutthroat. It beggars belief that anyone could argue for that.

Steve:

23 Jun 2014 5:32:09pm

I'm afraid I don't really follow what you are arguing here.

Our currency is artificially high because of unilateral actions by other major economies. Cutting rates will do little to depress the currency. Jawboning has been shown to be even less effective. What do we have left? It's not a matter of fair play, its a matter of what we can reasonably accomplish. No one is going to help us. We have to take matters into our own hands.

Peter the Lawyer:

23 Jun 2014 4:50:36pm

A company issues new shares to get more capital, because the investors in those shares can see a profit or a revenue stream from the investment. Printed money is not forming the same function at all, because the Government is not adding value, but merely dollars.

Peter NQ:

23 Jun 2014 10:10:29pm

What I'm saying is that old, protectionist policies may be just what we need at the moment. You can go to zero rates if you like, but they are so low that given another GFC, there's no where else to go.Protectionist policies may also have the benefit of insulating our economy and husbanding our strength (cash). There is a lot of money leaving the country for any manufactured good bought from overseas. Import Tariffs might slow that. With extra cash in the country, we could weather the next GFC reasonably well and reopen once everyone starts to play nice again.

MT_Syd:

23 Jun 2014 10:58:41am

Inflation is not necessarily the result of 'printing' money. It depends what you spend it on.

In our current arrangement the government delegates the creation of money almost entirely to banks. Each time bank makes a loan it is 'printing' money (not notes and coins, but the numbers in its accounts). Banks decide which types of things they will lend for, based on the return they can get from the loan.

So long as banks make good decisions about what to lend money (create money) for, we dont get much inflation.

Governments (with a sovereign currency) can create money just as easily as banks. If the government spends this sensibly, on activities that increase the size of the economy, then inflation will not increase.

Steve:

23 Jun 2014 12:26:09pm

I understand this is the case in some other countries but I was under the impression that this is not how banking works in Australia. Why are we so heavily reliant on the European debt markets if Aussie banks are just creating money out of thin air?

MT_Syd:

"Why are we so heavily reliant on the European debt markets if Aussie banks are just creating money out of thin air?"

banks love to tell everyone that the cost of their funding has increased to justify the gap between the RBA cash rate and the rate they charge you and I for loans

but it appears to be all smoke and mirrors, the real drivers of loan interest rates are competition with other banks, the cost of the banks operations which need to be paid for out of your loan repayments, and their need for profits

Steve:

23 Jun 2014 1:48:36pm

A small amount of research turned up the Australian Bankers Association report on sources of bank funding. They put the sources of funding in July 2013 at around (numbers are read of a graph so they are not exact)

Deposits - 53%

Short Term Debt - 19%

Long Term Debt - 18%

Equity - 7%

Securitisation - 3%

I am no expert but I do not believe loans in Australia are created out of thin air.

AE:

23 Jun 2014 2:46:01pm

That's quite a plan. Given that we can get that elusive "free lunch" with printed money (why hasn't somebody already thought of that?), can we all quit our jobs, and pay for imports of everything with printed money?And of course, it won't hurt our dollar at all will it, foreign lenders will still be happy to finance our current account deficit ever after.

MT_Syd:

23 Jun 2014 4:42:06pm

"why hasn't somebody already thought of that?"

they have - the US is currently 'printing' about 45 billion dollars a month

the reason it isnt done all the time, everywhere, is that printing money undermines confidence in the currency. So you can only really do it when you are sure that it wont destroy confidence in the currency, and wont create inflation problems.

The US can do it now because they are the biggest economy in the world, because they are the most powerful country, and because they dont (yet) seem to have an inflation problem from doing so.

Steve:

23 Jun 2014 5:19:44pm

Its not a free lunch. It is a method of extracting some of the value that monetary policy in other countries has artificially imparted onto our currency. Value that is causing our dollar to be higher than it naturally would and is causing substantial problems in our economy.

Did you bother to read through some of the arguments presented or did you leap from "someone said something I haven't considered" directly to attack mode? I quite specifically put some limits around how much and for how long we could perform such a maneuver. It's not going to solve all our problems, but it does solve one and generate billions of dollars in the process.

Vince:

23 Jun 2014 10:06:26am

@Steve - I don't agree. Today, there are a number of cash accounts out there offering over 4% return (eg UBank)- that's for zero risk. It is pretty easy to get 7% return on conservative risk investments. I think there is still a lot of meat on the bones.

Steve:

23 Jun 2014 12:23:45pm

The 4% rate with Ubank includes a 0.7% bonus rate that expires in a few months.Even at 4% you are earning a real return of under 1.5%. Pretty stingy. A few years back there were 7% rates available on term deposits, some of which are still alive but I would be interested to know where you can get a low risk 7% return today (I don't consider high yielding shares low risk).

Harquebus:

Steve:

23 Jun 2014 12:20:50pm

I am not trying to print "money" in the strict definition. What printing dollars would do is spread the value of our currency across a greater number of dollars, bringing the value of each one down. We then have some spare dollars to put to work.

I believe the best place thing to do with them would be to build infrastructure (and not more damn roads).

Harquebus:

Dandelion:

23 Jun 2014 12:35:13pm

Certainly not text book economics, but I tend to agree. The government could be creating money to spend on infrastruture, like the NBN. While ever the US and Europe are printing, inflation wouldn't be a problem and the dollar might even fall. Win-Win

Peter NQ:

23 Jun 2014 1:32:27pm

Working for a days wages paid in worthless fiat dollars is simply a tax on everyone. Wages would need to increase to ensure no one's dollars were undermined by this plan, but of course they would be. If the government was offering cash below inflation, then your savings would be earning cash below inflation.

This solution helps no one except the banks, who will simply put a margin on your debts and remove the margin from your savings. The banks will be the only ones who will return a profit.

AE:

23 Jun 2014 2:43:16pm

Let's just settle for just a little bit of inflation - and inflation hurts poor people much more than the wealthy. Just a little bit of inflation, won't hurt, what's the worst that could happen? The risk is that that projected inflation may not behave the way that it's supposed to, and get out of control. Like in the 1970s and 80s, and it took 18% interest rates and a big bad recession to choke it off.

GrumpiSkeptic:

23 Jun 2014 4:16:09pm

Steve,

I agree with you on the point that net savers being the real losers.

I am in that fortunate position to be able to put away some for the rainy days. The net gains I received from my savings in the ban is barely adequate to cover the inflation. Then taxation also skims off some of the misery interest I get !

I am tempted to spend the bloody lot and buy a flash new car. But that is not good forward planning either !

RoseAmberGreen:

23 Jun 2014 9:11:00am

Given what you have said, another option would be to temporarily return to a fixed exchange rate. It is artificial for sure, but so too is the QE money printing in the U.S. When they return to normal practice, moving away from QE and zero interest rates, then we can re-enter our currency into the market place.

If the economic rules are broken, we must adapt a new model until normalcy returns.

rattan:

cwitty:

23 Jun 2014 9:14:56am

You didn't really set out the reason why a strong currency is bad. Manufacturing in Aus was declining when the aud was 50c. On the positive side I can get a DVD player for about 30 bucks. Factories can buy new plant equipment at cheaper prices. Anyone in the import business is making a killing.

I agree that interests rates in Aus will need to go down. The AUD will appreciate even higher then parity based on money printing and the high yield on the AUD.

Macro prudential regulation in the housing market is shortsighted. It only hurts first home buyers and buyers at the low end. The deposit is the biggest hurdle in affordability, if the banks are only allowed to lend on an LVR of 80% buyers will need to save 150k min in the Sydney market. Investors like me will have no problem and the extra people renting will make me more money. I am buying a new flat this week on the premise that new buyers will be locked out by regulation and will be forced to rent from me. It happened in Auckland.

crickets chirping:

23 Jun 2014 9:46:44am

Good morning cwitty,"Macro prudential regulation in the housing market is shortsighted"

I would say it is rather non-existent.

Take that ever-popular taxdodge negative gearing for example.It is costing taxpayers some $4B, is used by only 8% of investors to actually build something (other 92% used to bid up price of existing homes), forces up land costs in general and rents in particular, and is therefore effectively locking First Home Buyers out of the market.

If government were serious about macro-prudential it would look at negative gearing as a matter of urgency.But what do we get from successive governments?*crickets chirp*

Rosie:

23 Jun 2014 9:17:07am

We have to cut our interest rate, simple as that. But first we have to put an end to negative gearing as it now operates, otherwise our colossal debt fueled house price bubble will inflate further (median house price of $1 million, anyone?). It's all going to end in tears eventually anyway, but we should at least play the same game as the other countries in the meantime.

cwitty:

23 Jun 2014 9:49:09am

negative gearing is a red herring. Removing the ability to combine income types also removes the ability to combine tax rates for the government. I just earn less then the tax free threshold on my rental income but I pay tax at 49%. If separate incomes then I would not have to pay any tax on my rental income. be careful what you wish for. Many more people pay tax o their investment properties then claim deductions.

CJB22:

23 Jun 2014 2:13:56pm

My main gripes about negative gearing are that it is inflationary, it diverts funds from productive investment and it makes buying a home (as opposed to buying a house) far more expensive. For the last few years the majority of housing loans have been going for investor properties. Yes they may make some money (until it all comes crashing down) but what has actually been produced? Negative gearing should only be allowed for new properties where the investment actually produces something and creates jobs. Making money without producing anything, which is what happens when investing in existing real estate, leads to inflation as can be seen in the current growth in house prices.

CJB22:

23 Jun 2014 9:49:18am

I couldn't agree more. The lion's share of current house sales is accounted for by investors. How can we let an obvious and massively inflationary system keep running. Yes, the investors make money (at the moment anyway) but nothing is actually made. Banks must be compelled to limit their loans for investors in the housing market. Maybe they could be compelled to have a 5% differential between the interest rates charged to investors compare to rates charged to owner occupier purchases.

DiogenesNT:

23 Jun 2014 7:40:56pm

Hey Peter, that is a bit rich. Why don't you provide facts, figures and evidence to the claims you make? If you ask others to do it, the onus is on you to do the same thing. Otherwise you are being a hypocrite.

Vince:

23 Jun 2014 10:03:52am

Not a bad idea. The lower interest rates would make the housing bubble bigger but this would be countered by the removal of negative gearing (driving the market down). But, of course, none of this will ever happen because it is not in the bank's interests and, as we all know, they basically are running the show thanks to this weak and pathetic government we have.

Gordon:

23 Jun 2014 2:58:27pm

I agree on the CGT. Moving away from the straight inflation- based calculation was a mistake. I would include homes in CGT - with some sort of threshold or discount maybe. 67% of households have equity in their home & that's a lot of voters to annoy.

Peter the Lawyer:

23 Jun 2014 5:00:00pm

I'd love to see how a government could in fact get rid of deductions for negatively geared property without doing it for other negatively geared assets. In fact, the legislation to stop such deductions would be incredibly complex and probably have a lot of unintended consequences.

The deduction in question is not a particular one written by the legislature just for those negatively gearing the purchase of a rental property, but the general provision which applies to the deductions for business expenses.

the yank:

23 Jun 2014 9:23:21am

Janet's problem is dealing with the US economy and Glenn's is Australia. Why would you expect Janet to be concerned about Australia?

There could also be the argument that the "carry trade" caused by the US's QE has been a plus for much of the world. Because of the US QE massive amounts of this money has sought higher yields so it has flowed into many other economies including Australia's.

GJA:

23 Jun 2014 9:26:56am

What effect will the Trade in Services Pact have on the Australian dollar? With more foreign competition - i.e., US banks - there will be significant pressure applied on our own system. "Open for business" is good news for the US, not so much for us, I suspect.

Harquebus:

pete:

23 Jun 2014 9:26:59am

Thanks again Ian.Your idea has merit: "Instead of sitting back and hoping that a booming Sydney housing market will solve all our problems, it perhaps should consider cutting interest rates - to aid industry and weaken the currency - while imposing limits on bank lending for real estate."

Enter macro prudential controls.

RBA can move interest rates but other factors such as lending behaviour as you mention are currently the real hobbler of enterprise growth.

Govt departments such as APRA, ATO, FIRB and Treasury can by design:- limit Interest-only loans to developers/builders of new homes, - decrease LVR to say 80%, - limit (similar to Singapore and China) the number of investment properties individuals can buy, - make SMSF property debt full recourse, - begin an audit of sales of properties in catchment areas of highly sought after public school zones, - enquire into why land inflation is not included in CPI calculations, - stop sales of existing homes to foreign students and temporary residents (and apply CGT against property sold when those who now own a property exit the country), - levy an additional tax on any property left idle for more than say 6 months in any 3 year period, - look at NZ FIRB rules and adjust downward threshold values before requirement to inform FIRB.

There are a few ideas to get the show moving.Lower land prices could translate into a more creative environment within which the economy can develop.

Harquebus:

23 Jun 2014 10:35:46am

Only cheap crude oil will allow economies to grow. The days of cheap crude oil are over.I see that politicians are now using the term "economic development" in lieu of "economic growth". What does that tell ya?

NomDePlume:

23 Jun 2014 9:38:53am

The US doesn't have a choice. With new job killing regulations coming out all the time, most recently, the new EPA regulations, the only option for the Fed Reserve is to print money. Given the current presidency is addicted to regulation, don't expect any change to the money printing until there is a new president in 2017.

Philosopher:

23 Jun 2014 9:40:31am

It was obvious that Stephens was out of his depth when the Reserve bank kept raising interest rates when it was obvious that a GFC was about to happen and we all paid for it.It is just as obvious that we need to lower interest rates further to lower the dollar and make us more competitive and stop this spending and misplaced investment. They don't seem to understand the obvious.

Caffettierra Moka:

There were only two rate hikes in 2007, as opposed to 3 in 2006. And the melt-down seems to have been a total suprise to anyone but the big players trying to unload their bit of it before it crashed.

If things were so obvious to someone like the 'World's Greatest Treasurer' how come he could bang $34 billions worth of tax cuts on the table with the threat of a crisis around the corner? If Peter Costello couldn't see it, how could the author here?

Philosopher:

23 Jun 2014 10:55:29am

I told the world of the coming Global Financial Crisis and the reasons for it over 2006 and 2007 when the Reserve bank was raising rates when they should have done the reverse. Had they listened then we would not have this debt and we would have had more flexibility.

If they lower rates they will get a better result as this article clearly outlines.

Who knows ... :

Philosopher:

23 Jun 2014 11:11:08am

As I said I warned the world that there was a GFC planned and imminent and no one listened. The evidence can be googled and is still on the internet. Simply google CDOs and other key phrases and you will see the articles from the period. It was deliberately engineered crisis by the US treasury and the US banks incl. the Fed.

Caffettierra Moka:

23 Jun 2014 3:27:55pm

If it was deliberate, then there was bugger-all that shifting the Australian interest rates up or down by a quarter point would do to either stop it or fix it. By definition, a covert plot to attack the financial underpinings of the Western banking system just wouldn't be discussed with people who could do something about it.

So, it was all the work of a clandestine cartel of financial figures and institutions at the highest level all working in concert under the leadership of some-one? Let's call him Dr Evil? And you knew all along?

MT_Syd:

Esteban:

Me Verrander proposes a limit on real estate lending as a bandaid to fix that little problem.

So that leaves us to consider the unknown consequences and what bandaids might be needed to fix the original bandaid.

OK put the proposition that we need ultra low rates but the bulk of the article should then focus on mitigating the problems that might arise such as a real estate bubble. A dismissive waive of the hand suggesting that real estate prices can be controlled by bank lending restrictions without any consequences or even exploring what those consequences might be means the article is lacking.

burke:

23 Jun 2014 9:43:13am

I don't see what is so bad about a strong A$. Clearly we are benefitting from low inflation, because of cheaper imports. Our strong dollar does not seem to hurt foreign investment. We all enjoy cheap holidays in Bali. Our exporters learn to live with a strong dollar. Other countries - Switzerland, Singapore, have lived with a strong currency for generations. Enjoy!

MT_Syd:

James:

23 Jun 2014 12:18:44pm

Yes, Switzerland is a fine example.

When foreign speculators flooded Switzerland with money and suddenly pushed up the exchange rate with the Euro, causing Swiss exports to collapse, their central bank very prudently pegged the value - no higher than 1 Euro per 1.20 francs (if I recall correctly).

Almost overnight, they solved their problem of hot money flowing into the country and killing off the productive economy. They didn't even have to distort their economy, promote speculative bubbles by lowering interest rates to artificially low levels, or whine for months that the nasty investors just wouldn't make the exchange rate go down.

Definitely an excellent example of efficiently dealing with a problem.

Meanwhile in Australia our exporters have indeed come to terms with the chronically strong dollar - with no relief in sight, they have packed their bags and fled. Perhaps in another few years, enough of them will have been driven away that there won't even be any need to consider exporters in monetary policy decisions. No doubt that would make the monthly RBA meetings a lot more efficient.

Vince:

Harquebus:

23 Jun 2014 10:06:40am

The calculations used in the U.S. employment statistics have been changed many times over the last 30 years. Also, the figures are fudged and it is the participation rate that is falling, not the unemployment rate.Relying on MSM for your information is not a good idea Ian.

The petrodollar is being abandoned and will cause the U.S, $ to drop further and U.S. inflation to rise as those dollars return to the U.S. Trade is increasingly being conducted in other currencies as major traders move away from the U.S. dollar as an intermediary.It also seems that Q.E. is being maintained secretly through large bond purchases via Austria. The U.S. $ has a long way to fall yet.

For a while there, I actually thought that Ian Verrender knew what was going on. This article proves otherwise.Get ready for Q.E.4 and onward into eternity.

ron n:

23 Jun 2014 10:54:54am

The simple facts remain: Investment in Australian manufacturing is declining simply because there's more profit in getting items made in a nearby Asian country where labour costs are one-fifth of Australian labour costs.

The greenback is essentially toilet paper. Endless, useless wars - endless technology and manufacturing transfer to China by Corporate America - endless Govt bureaucracy - and printing of vast sums of currency with no asset backing, have robbed the greenback of its formerly strong value. It's now the American peso or lira.

The fact that interest rates are zero or near to zero in many countries, with no real economic recovery in sight in America, or any of those other moribund economies , means the economists with their hands on the economic levers, now find the levers are jammed. They simply don't know what to do.

Meantimes, finance houses and banks rake in glorious levels of profits by borrowing at 0.1% from those low interest countries and lend it out to our strugglers at rates anywhere between 12 and 24%. Those same financiers also rake in glorious profit levels by financial manipulation via currency trading.

I know where the distortion is in our economy, and it isn't anything to do with our manufacturing costs. It's all to do with corporate players making huge profits that merely bleed the real wealth producers dry, whilst contributing little to the economy.

phowitt:

23 Jun 2014 10:57:11am

i ve read a few articles that report how usa reserve bank is propping up wall street and becoming a major investor as the yield from bonds are so low .. basically artificially inflating the market ... who would think any large private companies would ever manipulate prices bis libor . gold etc etc ... .

Stuffed Olive:

23 Jun 2014 10:59:04am

So if the market isn't working the way we would prefer we need to fiddle the market. China has been doing that with ore prices. We get screwed. If we lower interest rates to bugger all we still screw ourselves i.e. super funds, interest on savings and then housing gets cheaper and we flood the market with more buyers for a scarce product. Will Tony Abbott fix that at the G20?

Handoyo:

23 Jun 2014 11:06:24am

Good article Ian. I would have like more discussion about corporations taking the bulk of the mining boom benefits out of the country, but you can't please all the readers. Maybe next issue.The jobs lost from manufacturing, like the jobs about to be lost in the automotive sector - does anyone still think the 2016 withdrawal is going to happen in an orderly manner? - are jobs that are lost forever. Even if we returned in some way to a country that makes things it will be so much more automated as to make little difference on the employment numbers.Robots are now advancing to the level that they can be readily accessed, and trained in basic assembly so as to replace the unskilled worker. The next generation of workers will need to transfer their skills to robotics and other advanced systems, and where in the training system is there scope for that? Not much.As for the terms of trade, it shows how much of a fabrication our economy has become. The dice are loaded, the house is crooked and I don't share confidence anything will get better soon. Negative US rates anyone?

AE:

Ursus Augustus:

23 Jun 2014 11:06:38am

I very much doubt that the US has Australia in its policy settings sights let alone with the intent of 'squeezing us dry'. That their policy settings may adversely affect us is basically our problem in the grown up world. As others here have noted, running up a shipload of debt when the terms of trade suggest we should be putting money in the bank for the proverbial rainy day is our fault as a nation. Internally we need look no further than the dingbat policy design and implementation of the utterly inept and quite unstable pervious government. This article by Mr Verrender is just playing games with words.

MT_Syd:

23 Jun 2014 11:35:52am

"...we should be putting money in the bank for the proverbial rainy day"

who are you referring to?

If you mean individuals and corporations then putting money aside for a rainy day might be a good idea. However, if everyone does this then demand falls, jobs are lost, the economy shrinks, government revenues go down and the welfare bill goes up.

If you mean the government should be running a surplus, again consider the effects on the economy. Would that surplus money be doing more good sitting in an RBA account, or being spent in the economy helping it to grow? The bigger the surplus the stronger the dampening effect, and vice versa.

What is better when that rainy day comes? A large and growing economy, or an already shrinking economy but with a few billion sitting in the RBA account.

Ursus Augustus:

23 Jun 2014 4:16:38pm

Well before Labor pissed it up against the wall MT, we had a growing economy AND a $100 billion or so in the bank. Thanks to them thinking that all discipline was off the agenda post GFC we are now in the red by a few hundered Billion and borrowing to pay the interest. Gonna have to run a surplus sooner or later, even Wayne Swan knew that but just could not deliver. That there will be pain is a symptom not a cause. As others comment the need to borrow, borrow, borrow just puts our economy at the mercy of the world currency winds and tides including those generated by the US , China and other big economies.

MT_Syd:

however, had we not had the GFC stimulus program - which was the source of the bulk of the debt, we would have fallen into recession, which would have cost us a whole lot more.

currently we have a net government debt of 12 % of GDP. This is far from being an emergency that requires strict fiscal measures. We could have made no changes to the budget track left by the ALP and in ten years would still only have a net debt of 16%.

Note that Menzies ran a budget deficit for 17 budgets in a row, and that in the last 100 years we have run a surplus only 18 times. It just isnt necessary or even prudent to aim for a surplus simply for the sake of having a plus sign on the bottom of the balance sheet.

T.Williams:

23 Jun 2014 11:10:51am

What a laughable state of affairs this country has become. Big business propagandises relentlessly via the 70% Murdoch Press gerrymander, to the point where people actually vote for the party that is making them poorer and the big corporations richer.What a nation of fools.

Ann:

23 Jun 2014 2:01:03pm

I do find it interesting that, for instance, the only furniture one can find that is "Made in Australia" is terribly boring, generic stuff. Even if it's made to a better quality standard (though often still out of pine) it just looks boring. It's like they haven't bothered to do a litmus test of consumer taste for the last 50 years.

Save the Krill:

23 Jun 2014 2:11:04pm

Yes, will-r. It is as easy as that. You do it, then! I do get annoyed at people on these pages who glibly say "business should do this ... or that ....", or "all we have to do is make this or that". This is utter rot. Establishing and growing a business in Australia (the highest cost environment in the world) is extremely difficult and eye wateringly expensive. So will-r, get out there and do it for your country!

Juliet:

23 Jun 2014 11:45:55am

Another problem for the RBA at present is the facade of stable unemployment. the unemployment rate has not shot higher, which would normally trigger another rate cut. instead, it has hovered just under 6% for the past 2 years and is trending higher only very slowly. this is misleading us into thinking joblessness is not rising. it is, but it is showing up in the participation rate instead of the unemployment rate, because large numebrs are dropping out. especially working age men, who have departed the industrial sectors (manufacturing, utilites and construction) and dont see any viable jobs out there for them. unemployment is a problem but the RBA does not need to acknowledge that it is, so long as the UE rate officially remains well behaved.

Napoleon:

23 Jun 2014 11:47:43am

A population of 23m in a country the size of Australia and with the natural resources it has cannot determine it's own economic and political destiny. When will Australia understand that population is key to growth instead of being a continent with an insular mentality.

Wigham99:

23 Jun 2014 2:44:24pm

Napoleon, if you want growth for growth's sake then sure, grow the population. If you want growth that benefits the majority of people in the economy then a stable population is a far better option. Look at all the countries in the world with high population growth rates and take note of the growing inequalities in their societies. It is great if you are on the top of the pile and don't mind living in a fortress to keep out the people on the bottom of the pile who have nothing to loose except their miserable lives. If you want to live in a human-battery-farm environment then perhaps you might like to go and live in any of the numerous disaster areas that already exist rather than lobby for Australia to continue down the path to join them.

CF Zero:

23 Jun 2014 12:36:37pm

Think this is bad, its going to get much much worse.

15/08/71 Richard Nixon reneged on the gold standard, what they didnt realise at the time was that because every currency in the world was pegged to the $USD, this uncoupling effectively meant every currency on the planet was in fact backed by...nothing! Except the govt promise to force future generations to pay tax to repay debt.

Now the bad news is that every single FIAT currency ever created has always and without exception reverted to its real value. Nothing. The $USD, Euro etc etc are no different and they will also revert to their intrinsic value....nothing. As will the $AUD.

This situation is so bad there is no turning back, if the US ever raises interest rates the govt will be paying 33% of its income in interest and the population will revolt, and they are armed so it will be a serious threat. (The real reason DHS and other US dept's now own 500 Million rounds of hollow point ammo becomes apparent).

The so called tapering is con, we have on the one hand Yellen saying they are reducing stimulus payments ($45B a month now - consider QE 1 was $45B this means they are reproducing QE1 every month!) yet also saying interest rates will be down for the foreseeable future, but to keep interest rates down bonds must be purchased which is stimulus....think about it, thats how brazen the lies have become.

MT_Syd:

CF, you assume that gold has an intrinisic value. But this is no more true than for any fiat currency.

The 'intrinsic' value of gold is no more than the trust that people have that a certain amount of gold can be used to purchase good, to pay taxes, or to exchange for other currency.

This is the same basis for the value of a fiat currency.

The difference is that the amount of gold cannot increase (very much). It certainly cant increase at the speed that economies grow by.

The problem you have then, if gold is your standard, is that when the economy grows each unit of gold must become more valuable (more goods and services per gram of available gold). You end up restricting the growth of your economy unnecessarily , because people will have a big incentive not to spend - but to wait until their gold becomes even more valuable

Cfz:

23 Jun 2014 3:11:53pm

The intrinsic value of gold is the effort required to get it, plus whatever value we put on it for its industrial.Banks & govt hate it because it gives people control over money and forces balanced budgets. Gold is money - everything else is credit. JP Morgan.

cfz:

23 Jun 2014 7:23:10pm

Well I disagree there, the price of gold is the cost of its replacement and while the price on the market may be set, this is not the real price but is merely a contract for future delivery. Now considering that every ounce of gold has been sold 100x over and the price is suppressed with naked shorts that the seller cannot deliver on, the price for gold is much much higher than what it appears. Traders speculate on the contract but few if any are held to maturity. Gold trading is a game of musical chairs, when the music stops if you dont hold it - your out.

This is shown by the recent attempt by Germany to repatriate its gold but the US cannot deliver because it has "re-hypothecated" ie stolen it and on-sold it to the Chinese. If the price was really set by the market then the US could repurchase this gold and send it off to Germany, but they cant, because Gold in large quantities is not available. Every ounce sold 100x over - what is the real price if the naked shorts are not used to suppress it?

For something to be money it must have these properties-Unit of accountMedium of exchangePortableDurableDivisibleFungible (my 1 oz is the same as your 1oz)Store of valueSo some materials may in fact be harder to obtain than gold but are not suitable as money because they lack the above properties and interestingly, the $USD is not money because it has lost 99% of its value since creation.

salvarsan:

MT_Syd:

If gold was pegged at approx its current value, then a dollar of gold would be about one thousandth of a gram. How you intend to divide that or use it at your local supermarket i do not know.

Nor can be a store of value.

lets do a thought experiment. lets say we go with your plan, and peg a dollar to be equal to 0.001 grams gold.

Now lets say people get paid in dollars as they do now, and borrow from the bank to buy a house. Imagine for a moment a person who has a wage of $100, and a debt of $1000.

Over time the population grows, lets say by 10 percent. Since the amount of dollars in the economy is fixed, this means that everyone must on average take home 10 percent less. So our imaginary person now has a wage of $90.

But he still has a debt of $1000.

Now imagine the effect this has on everyone that borrows money, every business, every homeowner. they all know that as the economy grows they will be less able to pay any debts.

They stop borrowing. the economy grinds to a halt.

(we can leave the absurdity of how you would pay gold miners for another day, given that in your scheme the value of gold is the cost of extracting it. What miner would give you gold in return for tokens worth less than the gold itself? How would you ever have enough dollars to buy the new gold from the miners?)

Shane:

24 Jun 2014 5:26:41am

Speculators trade via a mechanism called a CFD (Contract For Difference). It's a derivative investment vehicle and anyone involved in trading them knows that at no point do they ever actually own the underlying item that the CFD is based on. If I buy dollars against aussies via a CFD, I don't suddenly have a pile of US dollars sitting around somewhere.

Maybe you should wait until second year economics before you start lecturing people.

Stephen W S:

23 Jun 2014 12:38:26pm

The time has come for Joe Hockey to show some real forage and stand up on the floor of our nations Parliament to declare the USA as a currency manipulator who is selfishly attempting its own recovery from the GFC by damaging all of its competitors by forcing down the cross rates with excessive liquidity inputs that are silently sowing the seeds of the next great crisis in financial markets.

This excessive pumping in of funds has long been shown to be useful only in the short term and that long term it creates dangerous bubbles.

Greenspan did it in the lead up to the Tech bubble, Bernanke did it in the lead up to the GFC and now Yellen is doing it. The bubble being created since 2008 will be huge and the effects of its inevitable explosion will wipe out all the gains in the USA economy since 2008.

Unfortunately, the markets are greedy and blind to risk and the politicians from Obama down only have eyes for the mid term elections.

The mid term elections are blinding Obama to all other risks that need action, overheating share market, property market recovering too quick, real danger of ISIS and hypocrisy of not helping a nation that torn apart and only partially reconstructed.

Malik was Bush's preferred leader and was supported by Obama even though it was obvious he was not trying really hard to unify the nation by fair and equal treatment of all of Iraq's citizens.

Yellen is a prisoner of the politicians who approved her appointment to the top job. As such we cannot hope for her to risk a second appointment in the future by biting the hands that appoint her.

Philosopher:

23 Jun 2014 2:41:47pm

You are correct in that the problem was again created from 2008 and will escalate and this GFC planned for the end of 2014 will be worse than all before it. It is designed to be so that the NWO can create a currency that supersedes national currency and which is based on SDRs out of the World Bank and the IMF. The horror has not sunk in yet to these politicians and the general masses.

Reinhard:

23 Jun 2014 12:42:45pm

Thanks Ian for pointing out the real reason for the decline in the automotive and other trade exposed industries. Despite the Coalition's constant false narrative it is not the Carbon tax, or greedy unions, but an overvalued $Aus. You could say we are a victim of our own success, being one of the few major trading nations not to fall into a recession during the GFC made us a safe haven for foreign investment to the point where the $Aus became a reserve currency and the 6th most traded currency on earth.We were all hoping that the after-effects of the GFC would not be so prolonged but to this day it continues to stifle the rest of the world's economic growth and keep our $Aus high. I can't help but wonder if the RBA's inaction in the past nine months over the high $Aus has been due to interference by the Abbott govt, as it would be in their best interests to continue the current blame game .

Ken Lyneham :

23 Jun 2014 12:51:57pm

Where is the sense in aligning ourselves monetarily, with a country that has in excess of a 17 trillion dollar debt? The US debt ceiling is set at 22 trillion and when they collapse, and they will, we will be dragged down with them. The ONLY reason the average Australian did NOT suffer as a result of the GFC that was driven by the USA, is because of the Labor government at the time bailed us out and put us into the third lowest debt of all OECD countries. The present Liberal government would NEVER think of a bailout, it's against their ideals, they would rather see everyone torn apart to financial shreds.Everyone will feel the crunch, rich included, but the rich have leeway, the middle and poor don't. Selling our bonds for US dollars is the craziest thing ever, they may as well sell each bond for a bag of feathers and THAT will be close as we'll get, to make our currency fly after the collapse.

lilly:

23 Jun 2014 12:55:22pm

I think Glenn Stevens is between a rock and a hard place. If he cuts interest rates to zero, he runs the risk of creating a property boom (and then bust). If he leaves them where they are, the dollar will remain high. The reality is that he only controls one leaver on the economy; the government controls the others.

There are things that could be done to improve Australia's position. Tax reform would be a good starting point. The trouble for any politican contemplating tax reform however is that it's a political graveyard. No matter what you do, you'll always leave some people worse off and your opponents will run a scare campaign to demonise any changes made. Furthermore, by the time any noticable benefits are felt, you will have long since been voted out of office.

To my mind, what Australia needs most is a reformed political system. It is our egotistical politicans who's narrow minds can't see beyond the limits of their party's ideology and their own desire for power that is preventing any substantial reform.

STB:

23 Jun 2014 1:26:48pm

What all the esoteric and sci-fi terminology deliberately hides from the public is that the US is simply printing money by the truck loads (over $2 trillion since 2008) in order to pay back debt with the newly printed money - worthless paper, and whilst big business is avoiding tax they also are getting cheap loans via the banks engorged with "funny money". Great economic system?

Rae:

RGG:

23 Jun 2014 1:39:07pm

The Free Trade Agreement that Howard signed with the USA is a disaster. For example, Pharmaceuticals are more expensive here than in NZ, Britain most of Europe etc.. Intellectual Property eg: IT is more expensive here. We are increasingly becoming the dumping ground for Inferior American products eg: cars

AE:

23 Jun 2014 4:32:33pm

I hope we can get American cars. They are way better than what we can get here, and much cheaper. For many years our cars were years behind the American equivalent and were much more expensive.If you don't like them you don't have to buy them, but I'd love to be able to get a Mustang.

Pensioner:

23 Jun 2014 2:06:40pm

I am on the library waiting list to read Malcolm Fraser's new book, "Dangerous Allies". (Sorry, Mr Fraser, as a pensioner I can't afford to buy it -- and Tony's war on pensioners has given me a bad financial insecurity complex.)

But Australia's relationship with the USA is hardly a relationship between equals. They like us as long as we do what they want. So Obama was nice to Tony because America might want Australia to come into the Iraq War again.

On the other hand, they don't give a damn about our financial situation. As far as Janet Yellan cares, Australia might as well not exist.

We really need to choose our friends better, and to re-think our monetary policy in relation to the USA.

AE:

Fergus McDonald:

23 Jun 2014 2:12:55pm

For a short term fix, the government should forget the AAA rating, borrow to the hilt, and watch the currency drop. They could then build all the infrastructure they need to improve productivity and so be able to pay back the borrowings! Simple.

AE:

Jenny:

23 Jun 2014 2:28:56pm

"Continue to wait around for the rest of the world to stop behaving badly, for markets to return to rational behavior" I wouldn't say it is aboslutely "bad" cause it is totally natural for countries only to pursue their own national interests ignoring the interests of others. The thing is that Australia should obey the same thing. It's just as simple as that.

Leon:

Von :

23 Jun 2014 2:42:21pm

The consensus seems to be that Australian interest rates must decline to levels so that overseas investors no longer invest in Australia financial products. This will reduce buying pressure of the Australian dollar and cause its value to fall to lower levels against the US$.

However to date the RBA has kept interest rates as high as possible to mitigate prices rises (price bubble) of assets such as real estate.

The RBA has only one course of action left but to request the Federal Government to reduce the demand on real estate by reducing the net (invited) immigration intake from 240,000 people per anum to less than 50,000 people per anum.

This action will enable house prices to stabilize (may be fall) and the A$ to fall and provide a business environment that can create jobs

bigmoo:

23 Jun 2014 2:54:30pm

The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

Roger of Scoresby:

23 Jun 2014 3:05:18pm

The RBA was fond of blaming the mining boom for the high dollar. Ergo a mining tax was mooted to dampen the mining sector, just slow down the rate of digging stuff up, and boost tax revenue too. This would deflate our dollar and have helped 'struggling manufacturers' and our rural exporters. And now somehow it is America's fault? Something is seriously fishy about our economy, why are our interest rates double that of other countries but our real estate is over twice the price? Maybe it is foreign capital flowing into residential housing. Perhaps politically there is no will to lower the dollar now as we import all of our manufactured stuff and voters will be upset paying more for their online shopping. I think it was Peter Costello who one of the first to see Australians as essentially just a nation of consumers. Visionary.

foolking:

So how do we devalue the dollar when far larger economies and financial markets will always buy it, because of our natural resources and stability?

We probably can't without legislating tariffs or tilting the board in our favor, which won't happen for various resons.

Just wondering out loud.. what if we bought housing with our suprannuation funds with[or without] the govt. still contributing half. with the aim of dropping rent costs to the point where it is just below parity/small profit.

The percentage fluctuations could be controlled by the reserve bank. Or the whole show could be run by a financially sound private consortium made up of 'ordinary australians'[whoever they are]. The key would be convincing people that it was pure free market capitalism..long term planning/market advantage by being safe and large.

If rent was cheap a high dollar would still affect exports[?] but low income people would have more choice, this would raise quality of life for us all.

Kevtrains:

23 Jun 2014 3:23:09pm

This is a Christian country, Glenn Stevens said once that he takes his directions from God (not us the tax payer apparently) We have Cardinal Tony taking directions from the Pope, Saint George Brandis fighting the heathen and Saint Mathius Corman chiselling out his own ten commandments. Add to all that Australia is the first Murdocracy in the world. Who's worried about the currency. I am worried about the black death. Plagues in Europe in the 16oo's cost a lot of lives and we are heading back to a time before the Enlightenment. I think Australia will land around 1580. Don't worry about the money, least of your troubles. Least they did not have the internet back then or any of that fancy stuff. Crusade anyone !

foolking:

23 Jun 2014 3:31:51pm

MT_Syd I'm having trouble grasping your argument in that having gold as a register of a dollars worth is a disadvantage. "Not wanting to spend because one day it will be more valuable". So spend $s now because tomorrow they will be worth less would have no end . Wages must go up and housing must go with the dollar. A more conservative approach would be to tie the dollar to gold and people would be encouraged to save, it sounds safer and a real anchor to keep things real. Unlikely to happen but don't you think?

MT_Syd:

the amount of gold does not increase, so the number of dollars does not increase

if the economy grows the fixed number of dollars (equivalent to gold) must be spread more thinly. For example, if the population increases.

this means that economic growth would force the dollar to become worth more.

any sensible consumer would soon realise that they should save, rather than spend their money

so this means that fixing the dollar to a quantity of gold has an inbuilt incentive for people to avoid spending

this type of incentive reduces demand, and limits economic growth

this is entirely unnecessary, because money does not gain its value from being fixed to a particular limited commodity. Moeny gains its value because people trust that other people will accept it as payment, that government will accept it as payment of taxes, and that it holds its value.

GraemeF:

23 Jun 2014 3:50:46pm

Why not just 'print more money' like the US is doing?

Use it to build more infrastructure like fast rail and renewable energy to keep employment ticking over and lowering the value of our dollar. Or even, shock horror, invest in more public housing and other public infrastructure. The US has made the mistake of basically giving it away to the banksters that stuffed the economy in the first place.

As for housing. Get rid of negative gearing. Tax asset gain the same as labour. Stop jamming an extra thirty thousand people a month into the country to keep housing demand high. Let a few 'market' pressures come to bear instead of artificially keeping its value high for speculation.

So why wait for them to stop printing money to revalue their dollar and start printing our own and using it for good, constructive uses, not banker's bonuses. Hell, pay off the 'debt' and stop kicking the poor, the sick, the young and the students in the teeth. If we don't have bonds then there will be no where to park money and put the value of the dollar up.

Breach of peace:

23 Jun 2014 4:17:11pm

Until Australia grows up and stops being a docile and submissive 'client state' nothing will change from the International private banking cartel they call the Federal Reserve which is not federal and there are no reserves. We have traitors in this country from the politicians who established it to the banksters with the complicity of the mainstream press and media who continue this fraudulent ponzi scheme from the private supra-national international banking cartel.

We either continue this faulty game of fiction and fiat money or we re-establish our own monetary system that cannot be manipulation with such ease. No one seems to read anymore or care about the direction and national sovereignty of their country.

Paul Tredgett:

23 Jun 2014 4:23:04pm

Pay CEO's differently. They can scrape by for a while on the basic wage they get, and the bonuses only kick in years down the track over averaged earnings. They may have moved on or retired, but they will be motivated to plan for the long term rather than stripping assets to grab the bucks.

GrumpiSkeptic:

23 Jun 2014 4:24:25pm

I am a mere economy midget. Can some learned persons please enlighten me on the following...

China has been accused by the US for artificially keeping its currency low. I believe the US has a point there. However, wouldn't printing shed-loads of money to keep the Yanky dollars low is also another way to keep its currency low?

Josh:

23 Jun 2014 4:26:12pm

The biggest mistake any government made was selling state assets and resources to wealthy corporations for a short term solution allowing them to dictate the market value and reap all the profits which they invest in foreign banks so they don't have to pay any taxes on earnings back to the Australian people who's labor and resources are the reason they are so rich. We should not allow our nations natural resources that rightfully belong to all Australian citizens to line the pockets of a few while they offer nothing in return yet complain when we try to place a tax on them just so we can get some money back from the billions they make from us. Forcing our governments to increase taxes on the working class to make up for the losses of poor decisions brought about by politicians who accept large payments by lobbyists that are only interested in their own wealth and not the wealth of the nation in which they were elected to represent. We should not become a pawn of foreign nation investors which creates an economy reliant on the demand of other countries only to have them sell out or cease doing business with us once we are no longer needed. Selling our assets back to us for half the price they brought it for because they own it and we need it. We have to wise up and stop being caught up in the petty games of finger pointing and name calling that keep us distracted from the real issues and hold our governments accountable for their actions. That's my rant and have a good day Australia.

Peter the Lawyer:

23 Jun 2014 5:05:33pm

I get the impression that many commeters here seem to believe that things can return to a golden past (the 1950s) when the people didn't really have to worry about anything as Australia road on the sheep's back with high tarrif walls protecting us and everything was dohunky dory.

That world, if it ever really existed, has gone. We are in a new dynamic world, where he rewards for just about everyone are a huge improvement in living standards.

The secret is not to cling to some old conservative-socialist dream of 'equality" and affordable housing, but to get on with adapting and making your own existence better. Concentrate o the micro and the macro will take care of itself.

bedlam bay:

23 Jun 2014 6:09:20pm

Great article. Could you look at the great scandal of transfer pricing. It seems the US is quite happy for Google, Amazon, Facebook, Apple, Starbucks etc to pay virtually no tax. Could the Aussie government tax them on revenues generated hear.

Rob:

23 Jun 2014 6:21:28pm

Not surprisingly financial markets greeted the pronouncmements with glee'

I bet theyr did-with the US Fed pumping trillion sinot Wall Street banks of which they are hoarding about 80% they are cashed up to take advantage of the secret talks our Govenrment is holding with them to allow more of them into the country. That together with the TPP agreement and our coming Government asset sales they are in a prime position to make us even more subservient to the US led financial capitalists.They mist be salivating at the thought.

See who owns the US fed and who in turn controls those owners and you may get some idea of the geo plitical and economic master plan of a global economy and Governments controlled in private hands.Protection of our 'sovereign borders from a few poor asylum seekers is a smoke screen for the 'gifting' of everything with those borders.

Lachy:

23 Jun 2014 7:24:51pm

The problem he faces essentially is that higher interest rates attract a larger flood of foreign investment to Australia since the rate differential is larger, resulting in an even higher dollar. However if he cuts rates then loose money in the housing sector pushes prices into bubble territory.

It sounds like you cannot have your cake and eat it too. But you actually can if you bother to do things you "aren't supposed to do".

Like, for example, a capital inflow tax. It is a reasonable, legitimate macroprudential tool. Allow the RBA to control that alongside interest rates and they can narrow the differential between our global return rates whilst increasing rates domestically to cool housing. Sovereign risk be damned: at some point the cost of changing the rules on investors is less than the cost of seeing our industries decimated by artificially high currency values. The revenues raised from this tax can be put in a sovereign wealth fund that invests in assets abroad, further depressing the dollar's value. And under the control of the RBA, not the Federal government (this is important). When these ridiculously artificial differentials are gone, the inflows tax can be set to 0% again (and the foreign assets in the fund sold) and remain dormant until the next time a crisis creates the insatiable urge for our trading partners to engage in competitive devaluation to our detriment.

If anything, consider the tax a "countervailing duty" against a "subsidy" (beggar thy neighbour monetary policy) by our trading partners, as per the trade rules of the World Trade Organisation. Those tit-for-tat rules exist so a credible threat can be raised against countries breaking trade rules. It is time we exercised our right to use them.

maggieatlas:

observer:

23 Jun 2014 9:27:12pm

I agree cutting interest rates and enforcing lending rules is a good way of bringing down the australian dollar. But I think he has another problem and that is inflation. The cost of living is rising and the current budget is only going to make it worse - so if the the cost of living goes over 3% then he is forced to look at raising rates. But the budget alo is going too act as a consumption tax so that will have the affect of removing money from the economy - wages are not increasing. So the bottom line is we have a huge number of problems, and I don't believe anyone understands the full picture of the Australian economy - if they do then they are not talking. More people work in retail than in any other industry, stop people spending my taking money out of their pockets by new stealth taxes and retail will suffer and so will jobs.

HMS_GrandMaster_V:

23 Jun 2014 10:53:36pm

A global digital currency not tied to any economy country wise but tied to the global economy.Then use the currency globally to conduct business without exchange rates, or the hassle of currency dropping or rising.

Profits need to be made, at the end of the day it is what drives growth.However the manner on how much profit and how this profit is achieved is important.Greed serves no one, not even the greedy.

Abbott just want to be good friends with Obama cause he thinks he can save him, but he can't no one can..........

MrEd:

24 Jun 2014 4:59:57am

Just glad I probably wont be around to see the financial crisis that is precipitated in 25 - 30 years when the yanks have to actually pay the piper for all these Govt bonds they are flooding the market with.

Paul Taylor:

24 Jun 2014 7:36:39am

Glenn Stevens, head of the Reserve Bank of Australia ( RBA), must be feeling he is between a rock & a hard place. It is a paradox that bankrupt or near bankrupt economies employing overly deregulated financial systems with little oversight or supervision like the US & countries in the EU were the primary causes of the GFC but with quantitative easing & the lowest lending interest rates on record will become the winners in an exit strategy that strongly disadvantages economies like Australia that weathered the financial storm with strong economic fundamentals.

The high value Australian currency has been the direct result of the two speed economy & the flood of cheap money seeking out higher rates of return.

When the Australian 4 pillar banks had access to the Federal government AAA credit rating on wholesale international borrowing they doubled their profits & still paid the government $4 billion in fees. Australian economists from JP Morgan estimate that the gap between the RBA cash rate & mortgage interest rates is now 1.65 percentage points higher than in 2007 & business loans 2.4 percentage points higher.....the big banks have not delivered the full RBA cuts to the cash rate aimed at stimulating the economy & are less likely to if the RBA cash rate was to go below the current 2.5%. For their own survival & to close out foreign competition the big 4 need to reduce their margins.

By October 2014 Janet Yellen, head of the US Fed, will not be ending quantitative easing but simply reversing the trend of added increases to the money supply.

Federal government debt of 14% of GDP ( $1.569 trillion) or $350 billion is not a problem by world comparison but combined private household debt ($1.5 trillion) & private business debt ($749 billion), together 174% of GDP is.

The average cash rate in Australia over the period 1998 to 2008 was 5.4% but now needs to be around 3.5 % as the norm in order to counter increased bank margins. According to JP Morgan that will occur only if the economy is growing around 3 to 3.25%, inflation is within the RBA 2 to 3 per cent range & unemployment is around 5%. The emphasis should be on innovative fiscal policy!

What now appears to be on the cards according to WikiLeaks is the Australian government is prepared to allow foreign banks with cheap money greater unfettered access to Australian markets ( banking, fund management etc.) with the greater corresponding potential for personal & financial details being sent overseas ...shades of big brother. In turn there is greater unfair competition with Australian banks & financial institutions leading to the demise of the 4 bank pillars, the ability of Australia to act independently in another GFC, for the people of Australia to be ripped off & a further watering down of the influence & effectiveness of RBA policy decisions.